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2-48 CVP and Financial Statements for a Mega-Brand...

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2-48 CVP and Financial Statements for a Mega-Brand Company Procter & Gamble Company is a Cincinnati-based company that produces household products under brand names such as Gillette, Bounty, Crest, Folgers, and Tide. The company?s 2006 income statement showed the following (in millions): Net sales $68,222 Costs of products sold 33,125 Selling, general, and administrative expense 21,848 Operating income $13,249 Suppose that the cost of products sold is the only variable cost; selling, general, and administrative expenses are fixed with respect to sales. Assume that Procter & Gamble had a 10% increase in sales in 2007 and that there was no change in costs except for increases associated with the higher volume of sales. Compute the predicted 2007 operating income for Procter & Gamble and its percentage increase. Explain why the percentage increase in income differs from the percentage increase in sales.,thank you i have two more questions too,2-61 CVP in a Modern Manufacturing Environment A division of Hewlett-Packard Company changed its production operations from one where a large labor force assembled electronic components to an automated production facility dominated by computer-controlled robots. The change was necessary because of fierce competitive pressures. Improvements in quality, reliability, and flexibility of production schedules were necessary just to match the competition. As a result of the change, variable costs fell and fixed costs increased, as shown in the following assumed budgets: Old Production Operation New Production Operation Unit variable cost Material $ .88 $ .88 Labor 1.22 .22 Total per unit $ 2.10 $ 1.10 Monthly fixed costs Rent and depreciation $450,000 $ 875,000 Supervisory labor 80,000 175,000 Other 50,000 90,000 Total per month $580,000 $1,140,000 Expected volume is 600,000 units per month, with each unit selling for $3.10. Capacity is 800,000 units. 1. Compute the budgeted profit at the expected volume of 600,000 units under both the old and the new production environments. 2. Compute the budgeted break-even point under both the old and the new production environments. 3. Discuss the effect on profits if volume falls to 500,000 units under both the old and the new production environments. 4. Discuss the effect on profits if volume increases to 700,000 units under both the old and the new production environments. 5. Comment on the riskiness of the new operation versus the old operation.

 

Paper#11026 | Written in 18-Jul-2015

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