Question

Case Study #1 Each question refers to the same initial data. Treat each Part individually. Ignore income taxes. Assume no beginning or ending inventories. Calculations and backup should be completed and submitted in Excel. Use proper Contribution Income Statement formatting – example below. Analysis can either be typed into cells in Excel (formatted to be easily legible) or typed into a text box in Excel. Contribution Margin Format Example: Data for all questions: Panalon produces cast iron dutch ovens (a deep pot with a lid that can be used on a stovetop or in the oven). Their pots are sold at many local department stores. The cost of manufacturing and marketing their pots, at their normal factory volume of 15,000 pots per month, is shown in the table below. These pots sell for $60 each. Panalon is making a small profit, but would prefer to increase profitability. Hint: Fixed costs are shown on a per-unit basis in the table based on normal volume. However, fixed costs as a total do not change when volume changes, so you will need to determine total fixed costs first. Data for all Questions:

Part 4: (16 points) Panalon is thinking of cutting costs by using a different raw material supplier. Their variable material costs would decrease by 25%. The quality of the metal is lower, so Panalon estimates that their additional fixed scrap costs related to the metal quality would be $20,000 per month. They would not change the pricing of their pots. Note: Use the initial data provided for all questions. Ignore the colored pots and special sale data from other questions. A) Prepare a revised Contribution Margin Income Statement to include the costs and benefits of the different raw material supplier. B) If the sales decrease because of the change in quality, how much of a reduction in sales (dollars and units) could Panalon handle and still keep their net operating income the same as before the supplier change? Show your data in a Contribution Margin Income Statement. C) Write a memo to the CFO that presents the pros and cons of the potential supplier change. Include the potential impacts on revenue costs and net operating income, as well as any other factors or consequences of this decision. Be sure to include quantitative evidence and backup as well as any qualitative analysis.

Part 4b: The analysis is expected to be thorough. Expect to present approximately 400 words, and support your analysis with data (either given or calculated). Remember that this is a letter to the CFO, so proper grammar is expected.

unit manufacturing cost Per unit per unit Variable Material $12.00 variable Labor $ 14.00 Variable Overhead $7.00 Fixed Overhead $9.00 total unit manufacturing costs $42.00 Unit Marketing Costs: Variable Marketing Costs $3.00 Fixed Marketing Cost $10.00 Total Unit Marketing Costs $13.00

Answer 1