i need help.Thanks MyAccounting eccept on the last-minute rooms? 00 units 13-26
ID: 2431994 • Letter: I
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i need help.Thanks
MyAccounting eccept on the last-minute rooms? 00 units 13-26 Cost-plus, target pricing, working backward. The new CEO of Rusty Manufacturing has asked for information about the operations of the firm from last year. The CEO is given the following information, but ver Problems with some data missing Total sales revenue Number of units produced and sold Selling price Operating income Total investment in assets Variable cost per unit 500,000 units $180,000 $2,250,000 $4.00 $2,500,000 Fixed costs for the year 1. Find (a) total sales revenue, (b) selling price, (c) rate of return on investment, and (d) markup percent- age on full cost for this product. 2 The new CEO has a plan to reduce fixed costs by $225,000 and variable costs by $0.30 per unit while continuing to produce and sell 500,000 units. Using the same markup percentage as in requirement 1 calculate the new selling price. Assume the CEO institutes the changes in requirement 2 including the new selling price. However, the reduction in variable cost has resulted in lower product quality resulting in 5% fewer units being sold compared with before the change. Calculate operating income (loss). 3. at concerns, if any, other than the quality problem described in requirement 3, do you see in imple- menting the CEO's plan? Explain briefly 4. WhExplanation / Answer
Answers
‘a’ and ‘b’
A
Fixed Cost
$ 2,500,000.00
B
Operating Income
$ 180,000.00
C=A+B
Contribution margin
$ 2,680,000.00
D
No. of units produced and sold
500000
E=C/D
Unit Contribution margin
$ 5.36
F
Variable cost per unit
$ 4.00
G = E+F
Selling Price per unit
$ 9.36
H = D x G
Total Sales Revenue
$ 4,680,000.00
‘c’
A
Operating Income
$ 180,000.00
B
Investment in Assets
$ 2,250,000.00
C=(A/B) x 100
Rate of Return on Investment
8%
‘d’
A
Fixed Cost
$ 2,500,000.00
B
Units
500000
C=A/B
Unit Fixed Cost
$ 5.00
D
Variable cost per unit
$ 4.00
E=C+D
Cost per unit
$ 9.00
F
Sale price per unit
$ 9.36
G = F - E
Mark up on Cost
$ 0.36
H = (G/E) x 100
Mark Up % on cost
4%
A
Existing Fixed Cost
$ 2,500,000.00
B
Decrease in Fixed Cost
$ 225,000.00
C=A-B
Revised Fixed cost
$ 2,275,000.00
D
Units
500000
E=C/D
New fixed cost per unit
$ 4.55
F
Existing Unit Variable cost
$ 4.00
G
Decrease in variable cost
$ 0.30
H=F-G
New Unit Variable cost
$ 3.70
I = E+H
New Total cost per unit
$ 8.25
J = I x 4%
Mark Up at 4%
$ 0.33
K = I + J
New Selling price per unit
$ 8.58
A = (500000 units - 5%) x $ 8.58
Sales revenue
$ 4,075,500.00
B = (500000 units - 5%) x $ 3.7
Variable cost
$ 1,757,500.00
C = A - B
Contribution Margin
$ 2,318,000.00
D
Fixed Cost
$ 2,275,000.00
E = C - D
Net Operating Income
$ 43,000.00
Other than problem of quality being eroded, CEO’s plan may face problem in implementation because:
>Reducing Fixed cost as well as Variable cost is not viable and not very possible to do so.
>Reduction in Fixed Cost allocated if done has to be done on whole fixed cost, and the allocated results might not be what’s planned.
>Fixed cost cannot be reduced in short run.
A
Fixed Cost
$ 2,500,000.00
B
Operating Income
$ 180,000.00
C=A+B
Contribution margin
$ 2,680,000.00
D
No. of units produced and sold
500000
E=C/D
Unit Contribution margin
$ 5.36
F
Variable cost per unit
$ 4.00
G = E+F
Selling Price per unit
$ 9.36
H = D x G
Total Sales Revenue
$ 4,680,000.00
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