Question

Chapter 19 Questions: 1. Jordan and Taylor are considering an advertising campaign for $40,000 annually. They expect this to increase sales by 5%. What would be the new net income? (6.5 points) 2. Yumminess wants to feature Chocolate Attack Brownies as a monthly special. The predicted sales volume is 50,000 tins. Yumminess wants Jordan and Taylor to cut their selling pricing by 10%, citing that the volume will more than make up the difference. What will be the break-even point in tins during this sale? (6.5 points) 3. Yumminess wants to feature Chocolate Attack Brownies as a monthly special. The predicted sales volume is 50,000 tins. Yumminess wants Jordan and Taylor to cut their selling pricing by 10%, citing that the volume will more than make up the difference. What net income can Jordan and Taylor expect during this offer? (7 points)

Answer 1

Calculate the new net income as shown below: Total variable cost per unit = Material + Labor + + Manufacturing).(Operating overhead expenses 0.20 0.85 = 6+1.50+ $100.000 200.000 + $80,000x700.000 200,000 = 6 + 1.50 + 0.425 + 0.08 = $ 8.005 per unit Fixed ) / Fixed ) (Advertising Total Fixed cost = Manufacturing + Operating + expense ( overhead expenses = ($100,000x0.15)+($80,000x0.80)+S40,000 = $15,000+S64,000+ $40.000 = $119.000 Contribution per unit = Sales price per unit – Variable cost per unit = $10-$8.005 = $1.995 Total Sales (in units) = Sales + Increase in sale percentage = 200.000 + (200.000 x 5%) = 210.000 units Net income = Total contribution-Total fixed cost =(210,000$1.995) -$119.000 = S418,950-5119.000 = $299,950 Therefore, net income would be $299,950.

Calculate break-even point in tins during the sale for monthly special as shown below: Fixed cost Break-even point in tins) =- Contribution per unit Contribution per unit = Sales price per unit – Variable cost per unit = $10-(10%x510) 7-58.005 =($10-$1)-$8.005 = $9-58.005 = $0.995 Fixed ) / Fixed) Total Fixed cost = Manufacturing + Operating overhead expenses = ($100.000X0.15)+($80,000x0.80) = $15,000+S64,000 = $79,000 Fixed cost per month is $6,583.33 ($79,000 = 12). Fixed cost per month Break-even point in tins) = Contribution per unit $6,583.33 $0.995 = 6,616.41 units. Therefore, break-even point in tins during this month special sale is 6,616.

Calculate net income that J and T expect during this offer as shown below: Net income = Total contribution - Fixed costs Total contribution = Total Sales - Total variable costs Total sales = Number of units sold ~ Selling price per unit =(50,000)>[s10-($10x10%)] = 50,000 ($10-$1) = 50,000 $9 = $450,000 Total variable cost = Sales units x Variable cost per unit = 50,000 $8.005 = $400,250 Total contribution per month = Total sales - Total variable costs = $450,000 - $400,250 = $49.750 Fixed ) / Fixed ) Total Fixed cost = Manufacturing + Operating overhead expenses = ($100,000x0.15)+(580,000x0.80) = $15,000+S64,000 = $79.000 Fixed cost per month is $6,583.33 ($79,000 + 12) Net income = Total contribution - Fixed cost per month = $49,750 - $6,583.33 = $43.166.67 Therefore, net income J an T can expect from the monthly special sale is $43,166.67.