Question

Frogs, Inc.
Commercial Projects Budget
For Year Ending 2018
Total Units to be sold:							100
					Per Unit		Total
Sales					$36,750		$3,675,000
Variable Costs
DM:					$7,980		$798,000
DL:
Design Department					$4,800
Engineering Sr.
Engineering Jr.
Concrete Casters
Owners
Total DL
MOH:
Design Department					$120
Engineering
Concrete Casters
Owners
Total MOH					$2,487
S & A Costs
SOH					$450		$45,000
Total Variable Costs
Contribution Margin
Fixed Costs
Warehouse Rent
Insurance
Equipment Depreciation
Department Supervisor
Direct Advertising
Total Fixed Costs
Net Income (Loss) Frogs, Inc. Part 5 Creating a Static Budget Goal: To create a static budget for a new product line. Information: Frogs, Inc. was able to negotiate a price of $36,750 for the parking lot and the restaurant owners are pleased with the work we did for them. Other companies have approached us for quotes on similar projects and we are excited to expand into this new area. After careful analysis, Frogs, Inc. estimates that they can provide 100 commercial projects in addition to the smaller projects they complete in a year. The Owners estimate that the commercial projects will cost the same as the parking lot job because the growth in the community is mostly companies of this size so the bid price will stay at $36,750. The commercial projects will be assigned to a newly rented warehouse with a yearly rent of $120,000 and insurance on the warehouse costing $40,000 each year. The other fixed costs are annual equipment depreciation of $250,000, a new department supervisor with a cost of $50,000 annually, and direct advertising costs of $25,000 a year. Assignment: 1. Create a static budget using the template provided. Please link the budget in excel. Remember that the fixed costs are annual numbers and will not be included in the Per Unit calculations. Please turn in the excel based budget for this question and a written document for the following questions. 2. What will the Contribution Margin be on the new commercial projects? 3. What is the Contribution Margin and Net Income if Frogs sells only 50 commercial projects? Or 150 commercial projects? 4. What happens if Frogs lowers the price to $35,000? What is the Net Income at this price? 5. What happens if Frogs raises the price to $40,000, but only sells 75 commercial projects? What is the Net Income at this price and quantity? 6. Identify implications and consequences: List and explain two positive and two negative consequences of providing the new commercial projects. 7. Based on your answers to previous questions, do you think Frogs decision to offer this new service was a good one? Explain.

Answer 1

Frogs, Inc.
Commercial Projects Budget
For Year Ending 2018
			IF	IF	IF	IF
Total Units to be sold:		$           100	50	150	100	75
					$        35,000	$        40,000
	Per Unit	Total
Sales	$ 36,750	$ 3,675,000	$1,837,500	$5,512,500	$    3,500,000	$    3,000,000
Variable Costs
DM:	$    7,980	$     798,000	$   399,000	$1,197,000	$       798,000	$       598,500
DL:
Design Department	$    4,800	$     480,000	$   240,000	$   720,000	$       480,000	$       360,000
Engineering Sr.
Engineering Jr.
Concrete Casters
Owners
Total DL
MOH:
Design Department	$      120	$      12,000	$      6,000	$     18,000	$        12,000	$          9,000
Engineering
Concrete Casters
Owners
Total MOH	$    2,487	$     248,700	$   124,350	$   373,050	$       248,700	$       186,525
S & A Costs
SOH	$      450	$      45,000	$     22,500	$     67,500	$        45,000	$        33,750
Total Variable Costs	$ 15,837	$ 1,583,700	$   791,850	$2,375,550	$    1,583,700	$    1,187,775
Contribution Margin	$ 20,913	$ 2,091,300	$1,045,650	$3,136,950	$    1,916,300	$    1,812,225
Fixed Costs
Warehouse Rent	$120,000
Insurance	$ 40,000
Equipment Depreciation	$250,000
Department Supervisor	$ 50,000
Direct Advertising	$ 25,000
Total Fixed Costs		$     485,000	$   485,000	$   485,000	$       485,000	$       485,000
NET PROFIT		$   1,606,300	$     560,650	$ 2,651,950	$      1,431,300	$      1,327,225
BREAK EVEN POINT UNITS		$            23.19			$              25.31	$              20.07

POINT 1-5 answered in template itself.

regarding implications of project, as per information provided, company should go for project since there is profit in each and every alternative provided.

however if company cannot sell projects over the break even point then project should be sraped.

point 7

since this is static budget, a static budget is created before activites taken for project therefore actual expenses may vary drasticly so if actual variance is adverse then project may not be opted however by this budget and figures project is profitable