Philip Halsey Managerial Accounting: Fall 2011 Copy of Revised Mid-ter 2 instruc
ID: 2372428 • Letter: P
Question
Philip HalseyManagerial Accounting: Fall 2011
Copy of Revised Mid-ter 2
instructions | help
1.
value:
6 points
Detmer Holdings AG of Zurich, Switzerland, has just introduced a new fashion watch for which the company is trying to find an optimal selling price. Marketing studies suggest that the company can increase sales by 5,000 units for each SFr2 per unit reduction in the selling price. (SFr2 denotes 2 Swiss francs.) The company’s present selling price is SFr93 per unit, and variable expenses are SFr63 per unit. Fixed expenses are SFr831,600 per year. The present annual sales volume (at the SFr93 selling price) is 25,400 units.
Required:
1. What is the present yearly net operating income or loss? (Input the amount as a positive value. Omit the "SFr" sign in your response.)
SFr
2. What is the present break-even point in units and in Swiss franc sales? (Omit the "SFr" sign in your response.)
Break-even point in units
Break-even point in Swiss franc sales SFr
3. Assuming that the marketing studies are correct, what is the maximum profit that the company can earn yearly? At how many units and at what selling price per unit would the company generate this profit? (Omit the "SFr" sign in your response.)
Maximum profit SFr
Number of units
Selling price SFr
4. What would be the break-even point in units and in Swiss franc sales using the selling price you determined in (3) above (i.e., the selling price at the level of maximum profits)? (Omit the "SFr" sign in your response.)
Break-even point in units
Break-even point in Swiss franc sales SFr
Explanation / Answer
Present SP pu = 93 Less Var sp =63 ---------------------- COnt pu = 30 pu Net Income = Total Cont - Fixed cost = No of unit sold * COnt pu - fixed exp ie Net Income = 25400*30 - 831600 = (69,600) ....................Ans (1) 2. BEP in units = Fixed exp/Cont pu = 831600/30 = 27720 BEP in SF = 27720*SP pu = 27720*93 = 2,577,960 ..................Ans (2) 3. New SP pu = 93-2 = 91 Less Var cost pu = 63 ------------------------- New COnt pu = 28 New No of units = 25400+5000 = 30400 SO Net Income = Total Cont - Fixed cost = No of unit sold * COnt pu - fixed exp ie Net Income = 30400*28 - 831600 = 19,600 ....................Ans (3) 4. New BEP = Fixed exp/Cont pu = 831600/28 = 29700 BEP in SF = 29700*SP pu = 29700*91 = 2,702,700 ..................Ans (4)