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Westboro, Inc_CVP Analysis




Question;Acounting;Westboro, Inc. makes table top two burner;cookers used South America and Central America. Recently, sales have been;declining as more families can now afford regular size stoves complete with;four burners and an oven. The company?s contribution format income statement;for the most recent year is given below;Sales (15,000 units x;$60);$900,000;Variable expenses;675,000;Contribution margin;225,000;Fixed expenses;245,000;Net operating income;(loss);(20,000);Required: (Round to the;nearest $ as needed);1.;Compute the company?s;CM ratio (2 points);2.;Compute the company?s;break-even point in units (4 points);3.;Compute the company?s;break-even point in sales dollars (4 points);4.;The president of the;company believes a $17,000 increase in the annual advertising budget will;result in an increase in quarterly sales of 1,000 units. If the president is;right what will be change in annual operating income? (Must show work to;support answer) (7 points);5.;Refer back to the;original data. The sales manager is convinced that a 10% reduction in the;selling price, combined with an increase of only $10,000 in the advertising;budget, will cause unit sales to increase by 50%. Prepare the new contribution;format income statement assuming these changes were adopted. (10 points);6.;Refer back to the;original data. The Marketing Department thinks that a fancy design on the stove;top would increase sales. The only cost associated with the new design would be;variable cost of $2.00 per unit. Assuming no other changes, how many units;would have to be sold each year to earn a profit of $5,500? (10 points);7.;Refer back to the;original data. By automating certain operations, the company could reduce;variable costs by $3 per unit. However, fixed costs would increase annually by;$45,000.;1.;Compute the new CM;ratio (6 points);2.;Compute the new;break-even point in units (4 points);3.;Compute the new;break-even point in sales dollars (4 points);4.;Assume the company;expects to sell 25,000 units next year. Prepare two contribution margin format;income statements, one assuming that operations are not automated and one;assuming that they are. (Show data on a per unit and percentage basis, as well;as in total, for each alternative.) The company is in the 30% tax bracket. (24;points)


Paper#37317 | Written in 18-Jul-2015

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