Problem 8-8 Performing a Comprehensive CVP Analysis (LO2 CC5, 9) The Central Val
ID: 2588820 • Letter: P
Question
Problem 8-8 Performing a Comprehensive CVP Analysis (LO2 CC5, 9) The Central Valley Company is a manufacturing firm that produces and sells a single product. The company's revenues and expenses for the last four months are given below Central Valley Company Comparative Income Statement June May 7,200 March 5,800 Sales in units Sales revenue Less: Cost of goods sold 6,300 8,600 $713,000 $643,000 $781,000 $853,000 439,000 376,500 348,500 385,500 $336,500 $294,500 $395,500 $414,000 Gross margin Less: Operating Expenses Shipping expense Advertising expense Salaries and commissions Insurance expense Amortization expense S 64,100 53,400 $ 67,600 89,500 168,000 15,500 48,500 89,500 164,700 15,500 48,500 89,500 136,500 15,500 48,500 64,500 89,500 167,000 15,500 48,500 Total operating expenses $382,300 $343,400 $389,100 $385,000 Net income $ (45,800) (48,900) $ 6,400 $ 29,000 Required 1. Management is concerned about the losses experienced during the spring and would like to know more about the cost behaviour. Develop a cost equation for each of the costs Cost of goods sold Shipping Salaries & commission per unit per unit per unit 2. Assume that fixed costs are incurred uniformly throughout the year. Compute the annual profit if 80,500 units are sold during the year nnual profit (80500 units) 3. Calculate the change in profit if the selling price were reduced by $11.0 each and annual sales were to increase by 7,600 units.Explanation / Answer
Ref No. March April May June Total Sales(Units) 1 6300 5800 7200 8600 27900 Sales($) 2 713000 643000 781000 853000 2990000 Cost of Goods Sold(COGS) 3 376500 348500 385500 439000 1549500 Gross Margin 4 336500 294500 395500 414000 1440500 Shipping Exp 5 64100 53400 67600 64500 249600 Advertising 6 89500 89500 89500 89500 358000 Salary & Comm. 7 164700 136500 168000 167000 636200 Insurance 8 15500 15500 15500 15500 62000 Amortization 9 48500 48500 48500 48500 194000 Total 382300 343400 389100 385000 1499800 Net Income -45800 -48900 6400 29000 -59300 1 Sales per unit 2÷1 =10 113.17 110.86 108.47 99.19 107.17 COGS per unit 3÷1 =11 59.76 60.09 53.54 51.05 55.54 Shipping per unit 5÷1 =12 10.17 9.21 9.39 7.50 8.95 Salary & Comm per unit 7÷1 =13 26.14 23.53 23.33 19.42 22.80 Contribution per unit 10-11-12-13 =14 17.10 18.03 22.21 21.22 19.88 2 No.of units sold during the year 15 80500.00 Total Contribution 14×15=16 1600478.49 Less: Fixed Costs Advertisement 1074000.00 Insurance 186000.00 Amortization 582000.00 17 1842000.00 Annual Profit/Loss 16-17 =18 (For 80,500 units) -241521.51 3 Reduction in Selling Price 11.00 New Contribution (19.88-11) 8.88 No.of units sold during the year (80500+7600) 88100.00 Total Contribution 19 (8.88*88100) 782479.57 Less: Fixed Costs Advertisement 1074000.00 Insurance 186000.00 Amortization 582000.00 20 1842000.00 Annual Profit/Loss 19-20 =21 -1059520.43 Change in profit/loss 21-18 -817998.92 ( Increase in Loss by 817999) 4 New Contribution 19.88 No.of units sold during the year 88100.00 Total Contribution 22 1751579.57 Less: Fixed Costs Advertisement (89500*12+113000) 1187000.00 Insurance 186000.00 Amortization 582000.00 23 1955000.00 Annual Profit/Loss 22-23 =24 -203420.43 Change in profit/loss 24-18 38101.08 ( Increase in profit by 38101)