Presented is the 2017 contribution income statement of Grafton Products. During
ID: 2583446 • Letter: P
Question
Presented is the 2017 contribution income statement of Grafton Products.
During the coming year, Grafton expects an increase in variable manufacturing costs of $12 per unit and in fixed manufacturing costs of $39,000.
(a) If sales for 2018 remain at 13,000 units, what price should Grafton charge to obtain the same profit as last year? Round to the nearest cent.
$Answer
(b) Management believes that sales can be increased to 16,000 units if the selling price is lowered to $200. 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 $254,800 with a unit selling price of $200? Round to the nearest unit.
Answer
0.00 points out of 1.00
GRAFTON PRODUCTSContribution Income Statement
For Year Ended December 31, 2017 Sales (13,000 units) $ 2,925,000 Less variable costs Cost of goods sold $ 780,000 Selling and administrative 208,000 (988,000) Contribution margin 1,937,000 Less fixed costs Manufacturing overhead 780,000 Selling and administrative 315,000 (1,095,000) Net income $ 842,000
Explanation / Answer
Answer:-(a)In coming year variable manufacturing cost :-
=($780000/13000 units)+$12 per unit = $60 per unit+$12 per unit
=$72 per unit
=13000 units*$72 per unit =$936000
Fixed Manufacturing cost =$780000+$39000 =$819000
Let selling price be =X
Sales-Cost =Profit
13000X-$936000-$208000-$819000-315000 =$842000
13000X-$2278000=842000
X=$2278000+$842000/13000 = $240 per unit
Grafton should charge $240 per unit to obtain a desired profit of $842000 as last year.
b)-
The expected profit would be as a result of action $658000.
c)- Let selling units be =X
Sales-Cost =Profit
200X-$72X-$16X -$819000-315000 =$254800
112X-$1134000=254800
X=$1134000+$254800/112 = 12400 unit
The sales volume of 12400 units needed to earn a profit of $254800 witha unit selling price of $200 per unit.
Grafton Products Contribution Income Statements For the year ended December 31,2017 Particulars Amount $ Sales 16000 units*$200 per unit 3200000 Less:- Variable costs Cost of goods sold 16000 units*$72 per unit -1152000 Selling & Administrative $208000/13000 units*16000 units -256000 Contribution margin 1792000 Less:- Fixed costs Manufaturing overhead -819000 Selling & Administrative -315000 Net income 658000