Question based on modified problems 3.3 from the reference text [Flynn (2009)] from page 78 of the textbook:
Polymerco, a North American manufacturer of specialty polymers, has the following highly condense income statement, given in the table below. There current sales are to North American customers only. The president casually mentions that it would be nice to have more offshore sales to diversity the company.
Polymerco Income Statement |
||
This year ($000) |
Last year ($000) |
|
Gross sales |
26518 |
24818 |
Bad debt |
nil |
nil |
Net sales |
26518 |
24818 |
COGS |
22,243 |
21,341 |
Contribution margin |
4275 |
3477 |
CM(%) |
16.1% |
14% |
SG&A |
2,122 |
2,067 |
Operating income |
2153 |
1410 |
Other income and interest on long-term debt |
-60 |
-50 |
Net income |
2093 |
1360 |
(a) if Polymerco's production is running at 84% capacity, what is the maximum discount in percentage that you can provide?
(b) if Polymerco's production is running at 100% capacity, how much percentage of discount can you provide without reducing the profitability?
Answer:
a)
Current Sales = $ 26,518,000
Possible Sales at 100% (full) Capacity
= $ 26,518,000 / 0.84
= $ 31,569,048
Possible Increase in Sales without plant expansion
= $ 31,569,048 - $ 26,518,000
= $ 5,051,048
There will not be any increase in Fixed Costs
Therefore, the increased Operating Income will be
= $ 5,051,048 * 16.1%
= $ 813,219
b)
The Company will need to invest in plant.This will increase fixed costs.Company should evaluate the proposal of capital Expenditure.Also External Financing need and Source of Funds needs to be determined.
Question based on modified problems 3.3 from the reference text [Flynn (2009)] from page 78 of...
Question based on modified problems 3.3 from the reference text [Flynn (2009)] from page 78 of the textbook: Polymerco, a North American manufacturer of specialty polymers, has the following highly condense income statement, given in the table below. There current sales are to North American customers only. The president casually mentions that it would be nice to have more offshore sales to diversity the company. Polymerco Income Statement This year ($000) Last year ($000) Gross sales 26518 24818 Bad debt...
Question 3 (20 points) Question based on modified problems 3.3 from the reference text [Flynn (2009)] from page 78 of the textbook Polymerco, a North American manufacturer of specialty polymers, has the following highly condense income statement, given in the table below. There current sales are to North American customers only. The president casually mentions that it would be nice to have more offshore sales to diversity the company Polvmerco Income Statement This vear ($000) Last vear ($000 Gross sales...
Polymerco, a North American manufacturer of specialty polymers, has the following highly condense income statement, given in the table below. There current sales are to North American customers only. The president casually mentions that it would be nice to have more offshore sales to diversity the company. Polymerco Income Statement This year (S000) |Last year (S000 Gross sales 25,421 24,224 Bad debt Nil ni Net sales 24,224 25,421 22,243 COGS 21,341 Contribution margin 3,178 12.5 2,883 11.9 2,067 816 2,122...
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