Question

The Central Valley Company is a manufacturing firm that produces and sells a single product. The company’s revenues and expenses for the last four months are given below.

Central Valley Company Comparative Income Statement
	March			April				May			June
Sales in units		5,800			5,300			6,450			7,600
Sales revenue	$	742,400		$	678,400		$	825,600		$	972,800
Less: Cost of goods sold		392,200			366,336			429,312			496,128
Gross margin	$	350,200		$	312,064		$	396,288		$	476,672
Less: Operating Expenses
Shipping expense	$	63,100		$	54,400		$	66,600		$	67,000
Advertising expense		82,000			82,000			82,000			82,000
Salaries and commissions		163,200			139,000			165,500			176,500
Insurance expense		13,000			13,000			13,000			13,000
Amortization expense		46,000			46,000			46,000			46,000
Total operating expenses	$	367,300		$	334,400		$	373,100		$	384,500
Net income	$	(17,100	)	$	(22,336	)	$	23,188		$	92,172

Required:

1.	Management is concerned about the losses experienced during the spring and would like to know more about the cost behaviour. Develop a cost equation for each of the costs. (Do not round intermediate calculations. Round "Per Unit" answers to 2 decimal places.)

2.	Assume that fixed costs are incurred uniformly throughout the year. Compute the annual break-even sales, and the profit if 74,000 units are sold during the year. (Round "Break-even sales" answer to nearest whole number.)

3.	Calculate the change in profit if the selling price were reduced by $8.0 each and annual sales were to increase by 6,600 units.

4.	Determine the change in profit if the company were to increase advertising by $108,000 and if this were to increase sales by 6,600 units.

Answer 1