Alpine, Inc., has been experiencing losses for some time, as shown by its most r

Question

Alpine, Inc., has been experiencing losses for some time, as shown by its most recent income statement: ALPINE, INC. Income Statement For the year ended June 30, 2012 Sales (40,000 Units at $12) $480,000 Less: Cost of Goods Sold Direct Materials $120,000 Direct Labor 65,600 Manufacturing Overhead 90,000 275,600 Gross Margin 204,400 Less: Operating expenses: Selling expenses: Variable: Sales Commissions $38,400 Shipping 14,000 52,400 Fixed (Advertising, salaries) 110,000 Administrative expenses: Variable (billing, other) 3,200 Fixed (salaries, other) 85,000 250,600 Net Loss $(46,200) All variable expenses in the company vary in terms of units sold, except for sales commissions, which are based on sales dollars. Variable manufacturing overhead is 50 cents per unit. The company

Explanation / Answer

this question goes like this it is similar to the ablove,

So revenue would increase by 50% to $720,000. A change of $240,000
All expense that are directly related to volume changes would also increase by 50%. These are Direct materials (would rise by $60,000), direct labor (would rise by $32,800), variable selling expenses of commission (would rise by $19,200) and shipping (would rise by $7000), and variable admin expense (would rise by $1,600).
All others would remain unchanged (manufacturing overhead, fixed selling expenses (advertising, salaries), and fixed administrative expenses (salaries, other)
So revenue increased by $240,000
Expenses increased by (60000+32800+19200+7000+1600) = $120,600
Incremental profit = 240000-120600 = $119,400
A target return of 4.5 percent on sales of 60,000 units would be .045*$720000 = $32,400 This is the desired profit

incremental target = 59000/1.73 = 34104

desired profit = original loss + incremental profit

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