Question

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 March April 6,300 5,800 $762,300 $701,800 405,450 378,972 Sales in units Sales revenue Less: Cost of goods sold May 7,200 $871,200 453,024 June 8,600 $1,040,600 530,706 $356,850 $322,828 $418,176 $ 509,894 $ Gross margin Less: Operating Expenses Shipping expense Advertising expense Salaries and commissions Insurance expense Amortization expense $ 64,100 89,500 164,700 15,500 48,500 $ 53,400 89,500 136,500 15,500 48,500 $ 67,600 89,500 168,000 15,500 48,500 64,500 89,500 167,000 15,500 48,500 Total operating expenses $382,300 $ (25,450) $343,400 $ (20,572) $389,100 $ 29,076 $ 385,000 $ 124,894 Net income 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. (Do not round intermediate calculations. Round "Per Unit" answers to 2 decimal places.) Answer is complete and correct. = Cost of goods sold Shipping Salaries & commission $64,672 $30,444 $73,346 + + + $ 54.19 $ 3.96 $ 10.89 per unit per unit per unit

Answer 1

2.
Contribution Margin per unit = Selling price - Variable cost per unit
= $121 - ($54.19+3.96+10.89) = $51.96 per unit

Fixed costs per month = $64672+30444+73346+89500+15500+48500 = $321962
Fixed Costs for year = $321962 x 12 = $3863544

Break Even Sales = Fixed Costs / Contribution Margin per unit
= $3863544 / $51.96 = 74357 units

Annual Profit for 80500 units

Contribution Margin	$    41,82,780	=80500*51.96
Less Fixed Costs	$    38,63,544
Annual profit	$       3,19,236

3.
New Sales units = 80500 + 7600 = 88100
Contribution Margin per unit = $51.96 - $11 = $40.96

Contribution Margin	$    36,08,576	=88100*40.96
Less Fixed Costs	$    38,63,544
Annual profit	$     -2,54,968

Decrease in Profit by $574204 i.e. $319236 + $254968

4. New Sales units = 80500 + 7600 = 88100

Contribution Margin	$    45,77,676	=88100*51.96
Less Fixed Costs	$    39,76,544
Annual profit	$       6,01,132

Increase in Annual Profit by $281896