The Food division of Garcia Company reports the following for the current year. Sales Cost of goods sold Gross profit Expenses Income $ 4,480,000 2,960,000 1,520,000 1,400,000 $ 120,000 Garcia wants to achieve at least a 10% profit margin next year. Two alternative strategies are proposed. Strategy 1: Increase advertising expenses by $225,000. The company expects this to increase sales by $760,000. Cost of goods sold vill not change. Strategy 2: Develop a more efficient manufacturing process. This will decrease cost of goods sold by $238,400. a. For each strategy, compute the profit margin expected for next year. b. Which strategy should Garcia choose based on expected profit margin?

The Food division of Garcia Company reports the following for the current year. Sales Cost of goods sold Gross profit Expenses Income $ 4,480,000 2,960,000 1,520,000 1,400,000 $ 120,000 Garcia wants to achieve at least a 10% profit margin next year. Two alternative strategies are proposed. Strategy 1: Increase advertising expenses by $225,000. The company expects this to increase sales by $760,000. Cost of goods sold vill not change. Strategy 2: Develop a more efficient manufacturing process. This will decrease cost of goods sold by $238,400. a. For each strategy, compute the profit margin expected for next year. b. Which strategy should Garcia choose based on expected profit margin?

Excel Applications for Accounting Principles

4th Edition

ISBN:9781111581565

Author:Gaylord N. Smith

Publisher:Gaylord N. Smith

Chapter18: Cost-volume-profit Analysis (cvp)

Section: Chapter Questions

Problem 1R: Poleski Manufacturing, which maintains the same level of inventory at the end of each year, provided...

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Keleher Industries manufactures pet doors and sells them directly to the consumer via their web site. The marketing manager believes that if the company invests in new software, they will increase their sales by 10%. The new software will increase fixed costs by $400 per month. Prepare a forecasted contribution margin income statement for Keleher Industries reflecting the new software cost and associated increase in sales. The previous annual statement is as follows:
Schylar Pharmaceuticals, Inc., plans to sell 130,000 units of antibiotic at an average price of 22 each in the coming year. Total variable costs equal 1,086,800. Total fixed costs equal 8,000,000. (Round all ratios to four significant digits, and round all dollar amounts to the nearest dollar.) Required: 1. What is the contribution margin per unit? What is the contribution margin ratio? 2. Calculate the sales revenue needed to break even. 3. Calculate the sales revenue needed to achieve a target profit of 245,000. 4. What if the average price per unit increased to 23.50? Recalculate: a. Contribution margin per unit b. Contribution margin ratio (rounded to four decimal places) c. Sales revenue needed to break even d. Sales revenue needed to achieve a target profit of 245,000
Faldo Company produces a single product. The projected income statement for the coming year, based on sales of 200,000 units, is as follows: Required: 1. Compute the unit contribution margin and the units that must be sold to break even. Suppose that 30,000 units are sold above the break-even point. What is the profit? 2. Compute the contribution margin ratio and the break-even point in dollars. Suppose that revenues are 200,000 greater than expected. What would the total profit be? 3. Compute the margin of safety in sales revenue. 4. Compute the operating leverage. Compute the new profit level if sales are 20 percent higher than expected. 5. How many units must be sold to earn a profit equal to 10 percent of sales? 6. Assume the income tax rate is 40 percent. How many units must be sold to earn an after-tax profit of 180,000?
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Poleski Manufacturing, which maintains the same level of inventory at the end of each year, provided the following information about expenses anticipated for next year: The selling price of Poleskis single product is 16. In recent years, profits have fallen and Poleskis management is now considering a number of alternatives. Poleski wants to have a net income next year of 250,000, but expects to sell only 120,000 units unless some changes are made. The president of Poleski has asked you to calculate the companys projected net income (assuming 120,000 units are sold) and the sales needed to achieve the companys net income objective for next year. Also, compute Poleskis contribution margin per unit, contribution margin ratio, and break-even point for next year. The worksheet CVP has been provided to assist you. Note that the data from the problem have already been entered into the Data Section of the worksheet.
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The Food division of Garcia Company reports the following for the current year. Sales Cost of goods sold Gross profit Expenses Income Garcia wants to achieve at least a 10% profit margin next year. Two alternative strategies are proposed. Strategy 1: Increase advertising expenses by $225,000. The company expects this to increase sales by $660,000. Cost of goods sold will not change. Strategy 2: Develop a more efficient manufacturing process. This will decrease cost of goods sold by $127,000. a. For each strategy, compute the profit margin expected for next year. b. Which strategy should Garcia choose based on expected profit margin? Complete this question by entering your answers in the tabs below. Required 1 $ 4,180,000 2,860,000 1,320,000 1,029,000 $ 291,000 Required Strategy 1 Strategy 2 For each strategy, compute the profit margin expected for next year. Note: Round your answers to one decimal place. Profit margin % %
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Given the above information in Q1, Shannon’s wants to increase its sales to retailers by 20% in the next year. Management estimates that the incremental promotion program required to generate sufficient demand to boost sales by 20% will be: Personal Selling Costs $ 60,000 (exclusive of commission) Consumer Advertising $ 58,296 Trade Promotion $ 41,369 Sales Promotion $ 25,000 Shannon’s will need to hire an additional sales person (paid a salary and commission) and provide some added administrative support. The sales person’s salary plus administrative support will cost about $60,000 per year. The sales person’s commission will be the equivalent of $0.05 per six pack sold. The incremental costs of consumer advertising, trade promotion, and sales promotion necessary to support sales in the new market will be substantial as indicated in the table above. How many six packs must be sold to break-even on the incremental costs that…
A company is making plans for next year, using cost-volume-profit analysis as its planning tool. Next year's sales data about its product are as follows Selling price P60 Variable manufacturing costs per unit 22.50 Variable selling and administrative costs 4.5 Fixed operating costs (60% is manufacturing costs) P159,500 Income tax rate 30% How much should sales be next year if the company wants to earn profit after tax of P23,100, the same amount that it earned last year?