Question

Scholes Systems supplies a particular type of office chair to large retailers such as Target, Costco, and Office Max. Scholes is concerned about the possible effects of inflation on its operations. Presently, the company sells 89,000 units for $70 per unit. The variable production costs are $40, and fixed costs amount to $1,490,000. 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 $40 variable costs, 45 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 4 percent as a result of increased taxes and other miscellaneous fixed charges.

Answer 1

A B C Η Ι sales price per unit labor costs per unit materials costs per unit variable overhead costs per unit contribution margin per unit number of units total contribution margin fixed costs net profit current revised $70.00 $77.00 $18.00 $21.60 -$8.00 $9.20 $14.00 $17.50 $30.00 $28.70 89,000 95,108 $26,70,000 $27,29,600 $14,90,000 $15,49,600 $11,80,000 $11,80,000 sales price per unit labor costs per unit materials costs per unit variable overhead costs per unit contribution margin per unit number of units total contribution margin fixed costs net profit current revised $70.00 $79.90 $18.00 $21.60 $8.00 $9.20 $14.00 $17.50 $30.00 $31.60 89,000 89,000 $26,70,000 $28,12,200 $14,90,000 $15,49,600 $11,80,000 $12,62,600 new price $79.90 volume in units sales 95,108 $73,23,316 sales price per unit labor costs per unit materials costs per unit variable overhead costs per unit contribution margin per unit number of units total contribution margin fixed costs net profit current revised $70.00 $77.00 $18.00 $21.60 | $8.00 $9.20 $14.00 $17.50 $30.00 $28.70 89,000 97,986 $26,70,000 $28,12,200 $14,90,000 $15,49,600 $11,80,000 $12,62,600 volume in units sales 97,986 $75,44,922

For formulas and calculations, refer to the image below -

B2 - X for a. A B C LM sales price per unit labor costs per unit materials costs per unit variable overhead costs per unit contribution margin per unit number of units total contribution margin fixed costs net profit current 70 =-40*45% =-40*20% =-40*35% =SUM(E3:56) 89000 =E7*E8 1490000 =E9-E10 revised =E3*1.1 =E4*1.2 =E5*1.15 =E6*1.25 =SUM(F3:F6) =ROUND(F9/F7,0) =F11+F10 =E10*1.04 =E11 sales price per unit labor costs per unit materials costs per unit variable overhead costs per unit contribution margin per unit number of units total contribution margin fixed costs net profit current revised =L7-SUM(L4:L6) =-40*45% =K4*1.2 =-40* 20% =K5*1.15 =-40*35% =K6*1.25 =SUM(K3:K6) =ROUND(L9/L8,2) 89000 89000 =K7*K8 =L11+L10 1490000 =K10*1.04 =K9-K10 =K11*1.07 new price =L3 volume in units sales =F8 =E13*F3 70 sales price per unit labor costs per unit materials costs per unit variable overhead costs per unit contribution margin per unit number of units total contribution margin fixed costs net profit current revised =E17*1.1 |--40*45% =E18*1.2 =-40*20% =E19*1.15 =-40*35% =E20*1.25 =SUM(E17:E20) =SUM(F17:F20) 89000 =ROUND(F23/F21,0) =E21*E22 =F25+F24 1490000 =E24*1.04 =E23-E24 =E25*1.07 volume in units sales =F22 =E27*F17

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