Question

Prepare the budgeted 2007 income statement for First-Class Ovenware that the production, quality, and product managers considered when they discussed the first option available to them.

a.   Under that option, shipment would be delayed and about one third of the year’s sales of 6,000,000 units would be lost.

  

2. Product would be sold at the 10% price reduction but produced under the old cost structure for six months (variable production costs of $5.55 per unit). After the six months the variable cost savings of 35% would be achieved.

3. Assume that recycling the current production would add $500,000 to the fixed production costs originally budgeted for 2007. In addition, the product line will incur an additional $2,000,000 in design engineering to solve the problem within a 6-month period (this will involve the use of overtime and consultants).

4. Other cost items would stay as originally budgeted for 2007.

What would the product line’s profit be under this alternative? What would the return on sales for the product line be?

Answer 1

Ini Page D) in the given problem , pt has been assumed that units are produced evenly throughout the year. Therefore out on the total 4,000,000 units, 2,000,000 are produced in the first 6 months and 2,000,000 units are produced in the later 6 months. - Farthus the amount on $2,000,000 in curred in design engineering is for improving the capacity and efficiency of the production line. Therefore, such expenses is capitalized and not charged to reven we. - From the given data : Di sales poſce per unit = $ 73,599,808 (as per 5,239,987 = $ 15 per unit 2) sales Cost = 6,000,000 x = 2,000,000 3) Reversed selling price = $15-($15 xloy) = $13.5 per unit.

Therefore, Budgeted Income statement for 2007 i Sales @ $13.5 - $524,000,000 sales en units 4,000,000 I cost on Goods sold & variable . first 6 months $11,100,000 . . next. 6 months. $ 7,215,000 =($11;100.000 XO FBled. (*27,865,240 +$500,000) $28,365,210 Goals profit. $ 7,319,760 Attoributable costs:- Marketing.. $ 4,500,000 > 15578941465 others $.2,517,537 €5,239,987. 4.000,00 Product line prof - $ 302,223 Return on seles = 0.567 : :

It has been assumed that units are produced evenly throughout the year (2000,000 units en fast 6 months and 2,000,000 units in next). > Amount Pin curved ops $2,000,000 Pm design engineering Ps for increasing the capacity and effe elemcy of production line. Therefore, it should be capitalized. - X -