Presented is the 2009 contribution income statement of Colgate Products. COLGATE
ID: 2519947 • Letter: P
Question
Presented is the 2009 contribution income statement of Colgate Products. COLGATE PRODUCTS Contribution Income Statement For Year Ended December 31, 2009 Sales (18,000 units) $2,160,000 Less variable costs Cost of goods sold $720,000 Selling and administrative 198,000 (918,000) Contribution margin 1,242,000 Less fixed costs Manufacturing overhead 750,000 Selling and administrative 320,000 (1,070,000) Net income $172,000 During the coming year, Colgate expects an increase in variable manufacturing costs of $8 per unit and in fixed manufacturing costs of $108,000. (a) If sales for 2010 remain at 18,000 units, what price should Colgate charge to obtain the same profit as last year? $ Answer (b) Management believes that sales can be increased to 24,000 units if the selling price is lowered to $109. What would be the excepted profit (or loss) as a result of this action? Use a negative sign with your answer, if appropriate. Answer (c) After considering the expected increases in costs, what sales volume is needed to earn a profit of $172,000 with a unit selling price of $109? Answer units
Explanation / Answer
(a) 2010 P.U. 2010 Sales *134 2412000 reuired (1350000+1062000) COGS 48 864000 Sellling & Distribution 11 198000 Total Variable Cost (b) 59 1062000 Contribution (b/a) 75 1350000 required (858000+320000+172000) Fixed Cost Manufacturing O/H 858000 Admin 320000 Profit 172000 * 2412000/18000 = $134 24000 Units (b) 2010 P.U. 2010 Sales 109 2616000 COGS 40 960000 Sellling & Distribution 11 264000 Total Variable Cost (b) 51 1224000 Contribution (b/a) 58 1392000 Fixed Cost Manufacturing O/H 750000 Admin 320000 Profit 322000 Notw: if we consider manufacturing cost remain then profit will be 322000 *27000 Units (c) 2010 P.U. 2010 Sales 109 2943000 COGS 48 1296000 Sellling & Distribution 11 297000 Total Variable Cost (b) 59 1593000 Contribution (b/a) 50 1350000 required (858000+320000+172000) Fixed Cost Manufacturing O/H 858000 Admin 320000 Profit 172000 *Sales Volume = Contribution / Contribution p.u. (1350000/50) = 27000 Units