Question

The Central Valley Company is a manufacturing firm that produces and sells a single product. The companys revenues and expen2. Assume that fixed costs are incurred uniformly throughout the year. Compute the annual break-even sales, and the profit if

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Answer #1

1.
Cost of Goods Sold
Variable cost per unit = ($496128-366336)/(7600-5300) = $56.43 per unit
Fixed Cost per unit = $496128 - 7600 x 56.43 = $67260

Equation = $67260 + $56.43 per unit

Shipping
Variable cost per unit = ($67000-54400)/(7600-5300) = $5.48 per unit
Fixed Cost per unit = $67000 - 7600 x 5.48 = $25352

Equation = $25352 + $5.48 per unit

Salaries and Commission
Variable cost per unit = ($176500-139000)/(7600-5300) = $16.30 per unit
Fixed Cost per unit = $176500 - 7600 x 16.30 = $52620

Equation = $52620 + $16.30 per unit

2.
Fixed Costs per month = $67260+25352+52620+82000+13000+46000 = $286232
Fixed Costs for year = $286232 x 12 = $3434784
Contribution Margin per unit = $128 - 56.43-5.48-16.3 = $49.79 per unit

Break Even = Fixed Cost / Contribution Margin per unit
= $3434784/49.79 = 68986 units

Annual profit (74000 units) = 74000 x 49.79 - 3434784 = $249676

3.
New Contribution Margin per unit = $49.79 - 8 = $41.79
Annual Profit = 80600 x 41.79 - 3434784 = ($66510)

Change in profit = Decreased by $316186

4.
Fixed Cost = 3434784+108000 = $3542784
Annual profit = 80600 x 49.79 - 3542784 = $470290

Change in Profit = Increased by $220614

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