No Service 6:01 PM * 70% KAssignment 1 CVP Decision Makin... Aranguez Corporatio

Question

No Service 6:01 PM * 70% KAssignment 1 CVP Decision Makin... Aranguez Corporation produces a molded plastic casing, LX20A, for desktop computers. Summary data from its 2013 income statement are as follows: 200,000 Jane Dall, Aranguez's president, is very concerned about Aranguez Corporation's poor profitability. She asks Giselle James, production manager, and Lester Saline, controller, to see if there are ways to reduce costs After two weeks, James returns with a proposal to reduce variable costs to 50% of revenues by reducing the costs Aranguez currently incurs for safe disposal of waste plastic. Saline is concerned that this would expose the company to potential environmental liabilities. He tells James, "We would need to estimate some of these potential environmental costs and include them in our analysis."You cannot do that," James replies. "We are not violating any laws. There is some possibility that we may have to incur environmental costs in the future, but if we bring it up now, this proposal will not go through because our senior management always assumes these costs to be larger than they turn out to be. The market is very tough, and we are in danger of shutting down the company. We don't want all our colleagues to lose their jobs. The only reason our competitors are making money is because they are doing exactly what I am proposing." Required .Calculate Aranguez Corporation's breakeven revenues for 2013. (2 2 Calculate Aranguez Corporation's breakeven revenues for 2013, if . Calculate Aranguez Corporation's margin of safety as a percent of Points) variable costs were 50% of revenues. (2 Points) sales assuming that variable costs have been reduced to 50% of sales. (2 Points) 4 Given Giselle James's comments, what should Lester Saline do? Bo sure to refer to the IMA's Ethical Guidance which is presented on pages 9-11 of the course text. Make sure you include the following in your answer: (9 Points) a Who are the stakeholders in this situation? Dashboard Calendar To Do Notifications Inbox

Explanation / Answer

1). Breakeven revenues for 2013:
Breakeven revenue is the point at which profit is zero which means revenues are equal to total cost.
Breakeven revenue = Variable cost + Fixed Cost
Breakeven revenue = $4,800,000 + $3,000,000 = $7,800 000

2). Breakeven revenues for 2013 when variable cost is reduced to 50% of revenues.
Breakeven revenue = 50% of revenue + $3,000,000
50% of revenue = $3,000,000
Revenue = $6,000,000

3). Margin of safety as a percentage of sales assuming variable cost to be 50%.
Margin of safety is the amount of revenue in excess of total cost .
Margin of safety % = (Current sales - Total cost)/ Total sales * 100
= ($8,000,000 - $7,000,000) / $8,000,000 * 100
= $1,000,000 / $8,000,000 * 100
= 12.5%

Here total cost = $8000,000 * 50% + $3,000,000 = $7,000,000

4). Full details required for this part are not available hence only you can explain this as the guildelines which are asked in the question are not available to me.

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