Accounting for Decision Makers Assignment
Directions: Answer all 3 questions. Please submit your work in Word or PDF formats only. You can submit an Excel file to support calculations, but please "cut and paste" your solutions into the Word or PDF file. Be sure to show how you did your calculations.
Question #1
The Samantha Corporation sells only one product. The following is budgeted information for that product:
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Annual production and sales capacity (units)
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80,000
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Budgeted selling price
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$150 per unit
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Variable cost of goods sold
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$45 per unit
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Fixed manufacturing costs
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$740,000
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Variable selling and administrative costs
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$15 per unit
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Fixed selling and administrative costs
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$700,000
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Samantha's corporate tax rate is 35%.
a) How many units does Samantha need to sell to breakeven?
b) How much revenue does Samantha need to generate to breakeven?
c) How many units does Samantha need to sell to earn an operating profit (before taxes) of $360,000?
d) How much revenue does Samantha need to generate to earn net income (after taxes) of $585,000?
e) Assume Samantha is currently producing and selling 32,000 units. By what percentage will operating income change if sales increase by 10% from 32,000 units? Be sure to provide figures to justify your answer.
f) Assume Samantha is currently producing and selling 32,000 units. By what percentage will operating income change if sales decrease by 8% from 32,000 units? Be sure to provide figures to justify your answer.
Question #2
A production company is planning to sell tickets to a show for $150 each. It's budgets variable costs are $20 per attendee. Total fixed costs are estimated to be $130,000. The theatre can accommodate up to 800 people because of safety concerns. What should the production company do? Why? Be specific in your response.
Question #3
The following is budgeted information for the Joseph Corporation:
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Product 1
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Product 2
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Annual production & sales
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30,000
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10,000
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Projected selling price
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$55
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$120
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Direct Production Cost Information
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Materials (per unit)
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$9
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$16
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Direct Labor (per unit)
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$15
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$25
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Additional information:
• Selling & administrative costs (a mixed cost) are budgeted to be $754,000 at the production and sales listed above. The variable component is $4 per unit (same for each product).
• Manufacturing overhead costs (a mixed cost) are budgeted to be $900,000 at the production and sales listed above. The fixed component is $660,000. Each product uses the same amount of variable manufacturing overhead per unit.
Assuming the budgeted sales mix remains intact, how many units of each product does Joseph need to sell in order to break even?