Question

Question B only
Davis Kitchen Supply produces stoves for commercial kitchens. The costs to manufacture and market the stoves at the company's normal volume of 6,000 units per month are shown in the following table. $ 58 83 33 68 Unit manufacturing costs Variable materials Variable labor Variable overhead Fixed overhead Total unit manufacturing costs Unit marketing costs Variable Fixed Total unit marketing costs Total unit costs $ 242 33 78 111 $ 353 Unless otherwise stated, assume that no connection exists between the situation described in each question; each is independent. Unless otherwise stated, assume a regular selling price of $386 per unit. Ignore income taxes and other costs that are not mentioned in the table or in the question itself.

Answer 1

Davis Kitchen Supply Requirement al Impact Sales Price Quantity Revenue Variable manufacturing costs Variable marketing costs Contribution margin Fixed manufacturing costs Fixed marketing costs Income Before Price After Price Reduction Reduction 386 341 6000 7000 2316000 2387000 1044000 1218000 198000 231000 1074000 938000 408000 408000 468000 468000 198000 62000 71000 174000 33000 136000 Increase Increase Increase Decrease None None Decrease 136000 Requirement a2 No I would not recommend taking this action Requirement b Revenue Variable manufacturing costs Variable marketing costs Contribution margin Fixed manufacturing costs Fixed marketing costs Income Without Govt. Contract 3088000 1392000 264000 1432000 408000 468000 556000 With Govt. Contract Regular Government Total 2702000 2670002969000 1218000 174000 1392000 231000 231000 1253000 93000 1346000 408000 468000 470000 Impact 119000 Decrease None 33000 Decrease 86000 Decrease None None 86000 Decrease Government revenue is 1,000 $174 +($408,000 x 12.5%) + $42,000 = $267,000 assuming the government's "share" of March fixed manufacturing costs is 12.5% (= 1,000 units +8,000 units).

А 3 Requirement a1 Impact Before Price Reduction 386 6000 =B6*B7 =174*B7 =33*B7 =B8-B9-B10 =68*B7 =78*B7 =B11-B12-B13 6 Sales Price 7 Quantity 8 Revenue 9 Variable manufacturing costs 10 Variable marketing costs 11 Contribution margin 12 Fixed manufacturing costs 13 Fixed marketing costs 14 Income 15 16 Requirement a2 17 18 No I would not recommend taking this action 19 20 Requirement b After Price Reduction 341 7000 =C6*C7 =174*C7 =33*C7 =C8-C9-C10 =B12 =B13 =C11-C12-C13 =C8-B8 =C9-B9 =C10-310 =B11-C11 Increase Increase Increase Decrease None None Decrease =D11-D12-D13 21 =B23-E23 Without Govt. Contract =8000*B6 =174*8000 =33*8000 =B23-B24-B25 =B12 With Govt. Contract Government 267000 =174*1000 22 23 Revenue 24 Variable manufacturing costs 25 Variable marketing costs 26 Contribution margin 27 Fixed manufacturing costs 28 Fixed marketing costs 29 Income Regular =B6*C7 =C9 =C10 =C23-C24-C25 Total =SUM(C23:D23) =SUM(C24:D24) =SUM(C25:D25) =E23-E24-E25 =B27 =B28 =E26-E27-E28 =B25-E25 =B26-E26 Impact Decrease None Decrease Decrease None None Decrease =D23-D24-D25 =B13 =B26-B27-B28 =F26-F27-F28