Question

In: Accounting

Exercise 12A-7 Customer Latitude and Pricing [LO12-9] The postal service of St. Vincent, an island in...

Exercise 12A-7 Customer Latitude and Pricing [LO12-9]

The postal service of St. Vincent, an island in the West Indies, obtains a significant portion of its revenues from sales of special souvenir sheets to stamp collectors. The postal service purchases the souvenir sheets from a supplier for $0.80 each. St. Vincent has been selling the souvenir sheets for $8.00 each and ordinarily sells about 80,000 units. To test the market, the postal service recently priced a new souvenir sheet at $7.00 and sales increased to 93,600 units.

Required:

1. What total contribution margin did the postal service earn when it sold 80,000 sheets at a price of $8.00 each?

2. By what percentage did the St. Vincent post office decrease its selling price? By what percentage did unit sales increase? (Round your answers to 1 decimal place.)

3. What total contribution margin did the postal service earn when it sold 93,600 sheets at a price of $7.00 each?

4. What was the postal service’s increase (decrease) in total contribution margin going from the higher price of $8.00 to the lower price of $7.00?

5. How many sheets would the postal service have to sell at the lower price of $7.00 to equal the total contribution margin earned at the higher price of $8.00? (Round your answer to the nearest whole number.)

6. What percentage increase in the number of sheets sold at $7.00 must be achieved to equal the total contribution margin earned at the higher price of $8.00? (Round your intermediate calculations to the nearest whole number. Round final answer to 1 decimal place.)

Solutions

Expert Solution

Answer 1.

Number of sheets sold = 80,000
Selling Price per sheet = $8.00
Cost per sheet = $0.80

Contribution Margin per sheet = Selling Price per sheet - Cost per sheet
Contribution Margin per sheet = $8.00 - $0.80
Contribution Margin per sheet = $7.20

Contribution Margin = Contribution Margin per sheet * Number of sheets sold
Contribution Margin = $7.20 * 80,000
Contribution Margin = $576,000

Answer 2.

Percentage Change in Selling Price = ($7.00 - $8.00) / $8.00
Percentage Change in Selling Price = -12.5%

Percentage Change in Unit Sales = (93,600 - 80,000) / 80,000
Percentage Change in Unit Sales = 17.0%

Answer 3.

Number of sheets sold = 93,600
Selling Price per sheet = $7.00
Cost per sheet = $0.80

Contribution Margin per sheet = Selling Price per sheet - Cost per sheet
Contribution Margin per sheet = $7.00 - $0.80
Contribution Margin per sheet = $6.20

Contribution Margin = Contribution Margin per sheet * Number of sheets sold
Contribution Margin = $6.20 * 93,600
Contribution Margin = $580,320

Answer 4.

Change in Contribution Margin = $580,320 - $576,000
Change in Contribution Margin = $4,320

Answer 5.

Contribution Margin = Contribution Margin per sheet * Number of sheets sold
$576,000 = $6.20 * Number of sheets sold
Number of sheets sold = 92,903

Answer 6.

Percentage Change in Unit Sales = (92,903 - 80,000) / 80,000
Percentage Change in Unit Sales = 16.1%

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

The postal service of St. Vincent, an island in the West Indies, obtains a significant portion...
The postal service of St. Vincent, an island in the West Indies, obtains a significant portion of its revenues from sales of special souvenir sheets to stamp collectors. The souvenir sheets usually contain several high-value St. Vincent stamps depicting a common theme, such as the life of Princess Diana. The souvenir sheets are designed and printed for the postal service by Imperial Printing, a stamp agency service company in the United Kingdom. The souvenir sheets cost the postal service $0.85...
The postal service of St. Vincent, an island in the West Indies, obtains a significant portion...
The postal service of St. Vincent, an island in the West Indies, obtains a significant portion of its revenues from sales of special souvenir sheets to stamp collectors. The souvenir sheets usually contain several high-value St. Vincent stamps depicting a common theme, such as the life of Princess Diana. The souvenir sheets are designed and printed for the postal service by Imperial Printing, a stamp agency service company in the United Kingdom. The souvenir sheets cost the postal service $0.75...
Exercise 9-7 Ayayai Company follows the practice of pricing its inventory at the lower-of-cost-or-market, on an...
Exercise 9-7 Ayayai Company follows the practice of pricing its inventory at the lower-of-cost-or-market, on an individual-item basis. item No. Quantity Cost per Unit Cost to Replace Estimated Selling Price Cost of Completion and Disposal Normal Profit 1320 1,400 $3.30 $3.09 $4.64 $0.36 $1.29 1333 1,100 2.78 2.37 3.61 0.52 0.52 1426 1,000 4.64 3.81 5.15 0.41 1.03 1437 1,200 3.71 3.19 3.30 0.26 0.93 1510 900 2.32 2.06 3.35 0.82 0.62 1522 700 3.09 2.78 3.91 0.41 0.52 1573...
Exercise 9-7 Sarasota Company follows the practice of pricing its inventory at the lower-of-cost-or-market, on an...
Exercise 9-7 Sarasota Company follows the practice of pricing its inventory at the lower-of-cost-or-market, on an individual-item basis. Item No. Quantity Cost per Unit Cost to Replace Estimated Selling Price Cost of Completion and Disposal Normal Profit 1320 1,500 $3.39 $3.18 $4.77 $0.37 $1.33 1333 1,200 2.86 2.44 3.71 0.53 0.53 1426 1,100 4.77 3.92 5.3 0.42 1.06 1437 1,300 3.82 3.29 3.39 0.27 0.95 1510 1,000 2.39 2.12 3.45 0.85 0.64 1522 800 3.18 2.86 4.03 0.42 0.53 1573...
Exercise 12-9 Evaluating New Investments Using Return on Investment (ROI) and Residual Income [LO12-1, LO12-2] Selected...
Exercise 12-9 Evaluating New Investments Using Return on Investment (ROI) and Residual Income [LO12-1, LO12-2] Selected sales and operating data for three divisions of three different companies are given below: Division A Division B Division C   Sales $ 6,000,000 $ 10,000,000 $ 8,000,000   Average operating assets $ 1,500,000 $ 5,000,000 $ 2,000,000   Net operating income $ 300,000 $ 900,000 $ 180,000   Minimum required rate of return 15 % 18 % 12 % Required: 1. Compute the margin, turnover and return...
Exercise 12-7 Sell or Process Further Decisions [LO12-7] Dorsey Company manufactures three products from a common...
Exercise 12-7 Sell or Process Further Decisions [LO12-7] Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $330,000 per quarter. For financial reporting purposes, the company allocates these costs to the joint products on the basis of their relative sales value at the split-off point. Unit selling prices and total output at the split-off point are as follows: Product Selling Price Quarterly Output A $ 16.00...
CHAPTER 7: SERVICE LINE COSTING AND PRICING Homework 3.1, Chapter 7 a. Your hospital is considering...
CHAPTER 7: SERVICE LINE COSTING AND PRICING Homework 3.1, Chapter 7 a. Your hospital is considering offering a new outpatient service. Using the data below, determine the price needed to breakeven. RELEVANT DATA: Variable cost per visit $8 Annual direct fixed costs $650,000 Annual overhead allocation $70,000 Expected utilization (visits) 10,000 b. Assume now that the CEO is requesting to know what price must be set in order to earn a $100,000 profit. What price must be set in order...
Exercise 12-9 Special Order Decision [LO12-4] Delta Company produces a single product. The cost of producing...
Exercise 12-9 Special Order Decision [LO12-4] Delta Company produces a single product. The cost of producing and selling a single unit of this product at the company’s normal activity level of 92,400 units per year is: Direct materials $ 1.90 Direct labor $ 3.00 Variable manufacturing overhead $ 0.80 Fixed manufacturing overhead $ 3.55 Variable selling and administrative expenses $ 1.40 Fixed selling and administrative expenses $ 2.00 The normal selling price is $22.00 per unit. The company’s capacity is...
Exercise 9-07 Windsor Company follows the practice of pricing its inventory at the lower-of-cost-or-market, on an...
Exercise 9-07 Windsor Company follows the practice of pricing its inventory at the lower-of-cost-or-market, on an individual-item basis. Item No. Quantity Cost per Unit Cost to Replace Estimated Selling Price Cost of Completion and Disposal Normal Profit 1320 1,600 $3.46 $3.24 $4.86 $0.38 $1.35 1333 1,300 2.92 2.48 3.78 0.54 0.54 1426 1,200 4.86 4.00 5.40 0.43 1.08 1437 1,400 3.89 3.35 3.46 0.27 0.97 1510 1,100 2.43 2.16 3.51 0.86 0.65 1522 900 3.24 2.92 4.10 0.43 0.54 1573...
Exercise 9-03 Skysong Company follows the practice of pricing its inventory at LCNRV, on an individual-item...
Exercise 9-03 Skysong Company follows the practice of pricing its inventory at LCNRV, on an individual-item basis. Item No. Quantity Cost per Unit Estimated Selling Price Cost to Complete and Sell 1320 1,800 $3.39 $4.77 $1.70 1333 1,500 2.86 3.60 1.06 1426 1,400 4.77 5.30 1.48 1437 1,600 3.82 3.39 1.43 1510 1,300 2.39 3.45 1.48 1522 1,100 3.18 4.13 0.85 1573 3,600 1.91 2.65 1.27 1626 1,600 4.98 6.36 1.59 From the information above, determine the amount of Skysong...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT