Question

argentina partners is concerned about the possible effects of inflation on its operations.

Saved Help Save FINICIJU Piyu UV nuvy BIS IURCE Inryca Argentina Partners is concerned about the possible effects of inflation on its operations. Presently, the company sells 67.000 units for $40 per unit. The variable production costs are $21, and fixed costs amount to $770,000. Production engineers have advised management that they expect unit labor costs to rise by 20 percent and unit materials costs to rise by 15 percent in the coming year of the $21 variable costs, 60 percent are from labor and 20 percent are from materials. Variable overhead costs are expected to Increase by 25 percent. Sales prices cannot increase more than 10 percent. It is also expected that fixed costs will rise by 6 percent as a result of increased taxes and other miscellaneous fixed charges. The company wishes to maintain the same level of profit in real dollar terms. It is expected that to accomplish this objective, profits must increase by 7 percent during the year. Required: a. Compute the volume in units and the dollar sales level necessary to maintain the present profit level, assuming that the maximum price increase is implemented. b. Compute the volume of sales and the dollar sales level necessary to provide the 7 percent increase in profits, assuming that the maximum price increase is implemented. c. If the volume of sales were to remain at 67,000 units, what price increase would be required to attain the 7 percent increase in profits? Calculate the new price. Complete this question by entering your answers in the tabs below. Required Required B Required Compute the volume in units and the dollar sales level necessary to maintain the present profit level, assuming that the maximum price increase is implemented. (Do not round Intermediate calculations. Round up your answer for "Volume in units to the nearest whole number and round your answer for "Sales" to the nearest whole dollar amount.) < Prey 1 of 8 !!! Next >

Answer 1

Please find below table useful to compute desired results: -

B C H D =B1*C1 67000 40 =B1*C3 770000 =C3 B7 =C3*B8 1 Sales 2 Production costs 3 Variable 4 Fixed 5 Expected rise in unit labor costs 6 Expected rise in unit Materials costs 7 Labor cost 8 Materials cost 9 Expected increase in Variable Overhead 10 Max. increase in sales price 11 Expected increase in Fixed costs 12 Increase in Profits 13 14 Calculation of Current Profit 15 Volume in units 16 Sales 17 18 Volume in units 19 Sales 20 21 Contribution Margin per unit for Req. C 22 New Price =20/100 =15/100 =60/100 1=20/100 =25/100 =10/100 =6/100 =7/100 =(C1-C3)*B1-D4 =(G21+G22)/G20 =B15*C1*(1+B10) =(121+122)/120 =B18*C1*(1+B10) for Req. A for Req. B Particulars Amount Amount Selling price per unit =C1*(1+B10) =G16 Direct material cost per unit =C3*B8*(1+B6) =F17 Direct Labor cost per unit =C3*B7*(1+B5) =F18 Variable overhead cost =C3*B9*(1+B9) =SUM(F17:F19) |=F19 =G19 Contribution margin per unit =G16-G19 =G20 Fixed cost =D4*(1+B11) =G21 Desired Profit =B14 =G22*(1+B12) =(121+122)/B1 =B21+119

End results would be as follows: -

F G H 67,000 C D 40 2,680,000 L 21 1,407,000 770,000 1 Sales 2 Production costs 3 Variable 4. Fixed 5 Expected rise in unit labor costs 6 Expected rise in unit Materials costs 7 Labor cost 8 Materials cost 9 Expected increase in Variable Overhead 10 Max. increase in sales price 11 Expected increase in Fixed costs 12 Increase in Profits 20% 15% 60% 20% 25% 12.60 4.20 10% 6% 7% 13 14 Calculation of Current Profit 15 Volume in units 16 Sales 503,000.00 75,437 3,319,217 18 Volume in units 19 Sales 77,450 3,407,808 for Req. A Particulars Amount Selling price per unit 44.00 Direct material cost per unit | 4.83 Direct Labor cost per unit 15.12 15.12 Variable overhead cost 6.56 26.51 Contribution margin per unit 17.49 Fixed cost 816,200.00 Desired Profit 503,000.00 for Req. B Amount 44.00 4.83 15.12 6.56 26.51 17.49 816,200.00 538,210.00 20 I 21 Contribution Margin per unit for Req. C 22 New Price 20.22 46.73