Question

Waterways Continuing Problem-6 (Part 1)

The vice-president of sales and marketing, Madison Tremblay, is trying to plan for the coming year in terms of production needs to meet the forecasted sales. The board of directors is very supportive of any initiatives that will lead to increased profits for the company in the upcoming year.

Waterways markets a simple water controller and timer that it mass produces. During 2016, the company sold 332,500 units at an average selling price of $8 per unit. The variable expenses were $1,429,750, and the fixed expenses were $688,000.

Question: Fill in the blank

Waterways is considering mass producing one of its special-order screens. This wou ld increase variable costs for all screens by an average of $0.64 per unit. The company also estimates that this change could increase the overall number of screens sold of 10% , and the average sales price would increase of s0.23 per unit Waterways currently sells 442,570.0000000000 screen units at an average selling price of $26.00. The manufacturing costs are $6,177,161 variable and $1,845,130 fixed. Selling and administrative costs are $2,395,217 variable and $715,460 fixed. If Waterways begins mass producing its special-order screens, how would this affect the company? (Round percentage answers to 2 decimal places, e.g. 25.15 % and other answers to 0 decimal places, e.g. 5,275.) Current New Effect Contribution margin ratio by 46.25 Operating income by 779050 542250 LINK TO TEХТ LINK TO TЕХТ LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO TEXT If the average sales price per screen unit did not increase when the company began mass producing the screen units, what would be the effect on the company? (Round percentage answer to 2 decimal places, e.g. 25.15 % and other answers to 0 decimal places, e.g. 5,275.) Contribution margin ratio will by Profit will by LINK TO TЕХТ LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO TEXxT

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Answer 1

		Current		New			Effect
	Contribution margin ratio	25.50	%	23.71		Decrease	-1.80
	Operating Income	$373,852		$466,469		Increase	$92,617
Working		Current		New
	Units	442,570		486,827
	Selling Price	$26.00		$26.23
	Sales revenue	$11,506,820		$12,769,472
	Less: Variable mfg. costs	$6,177,161		$7,107,674		[($6,177,161/442,570 + $0.64) x 486,827]
	Variable selling & adm. costs	$2,395,217		$2,634,739
	Contribution Margin	$2,934,442		$3,027,059
	Less: Fixed mfg. costs	$1,845,130		$1,845,130
	Fixed selling & adm. costs	$715,460		$715,460
	Net Operating Income	$373,852		$466,469
		Current		New			Effect
	Contribution margin ratio	25.50	%	23.03		Decrease	-2.47
	Operating Income	$373,852		$354,499		Increase	($19,353)
		Current		New
	Units	442,570		486,827
	Selling Price	$26.00		$26.00
	Sales revenue	$11,506,820		$12,657,502
	Less: Variable mfg. costs	$6,177,161		$7,107,674		[($6,177,161/442,570 + $0.64) x 486,827]
	Variable selling & adm. costs	$2,395,217		$2,634,739
	Contribution Margin	$2,934,442		$2,915,089
	Less: Fixed mfg. costs	$1,845,130		$1,845,130
	Fixed selling & adm. costs	$715,460		$715,460
	Net Operating Income	$373,852		$354,499