Hall Company had sales in 2014 of $1,322,160 on 62,960 units. Variable costs tot
ID: 2494353 • Letter: H
Question
Hall Company had sales in 2014 of $1,322,160 on 62,960 units. Variable costs totaled $692,560, and fixed costs totaled $509,400. A new raw material is available that will decrease the variable costs per unit by 24% (or $2.64). However, to process the new raw material, fixed operating costs will increase by $64,210. Management feels that one-half of the decline in the variable costs per unit should be passed on to customers in the form of a sales price reduction. The marketing department expects that this sales price reduction will result in a 8% increase in the number of units sold. Prepare a CVP income statement for 2014, assuming the changes have not been made. (Round per unit amounts to 2 decimal places, e.g. 11.85 and all other answers to 0 decimal places, e.g. 5,275.)Explanation / Answer
Statement showing CVP Analysis assuming changes are not made Particulars Amount Per Unit( Amount/ 62,960) Sales 1,322,160.00 21.00 Variable Costs 692,560.00 11.00 Contribution (Sales - Variable Costs) 629,600.00 10.00 Fixed Costs 509,400.00 Income(Contribution - Income) 120,200.00 Statement showing CVP Analysis assuming changes are made Particulars Amount Per Unit( Amount/ 67,996.80) Sales 1,338,177.02 19.68 Variable Costs 568,453.25 8.36 Contribution (Sales - Variable Costs) 769,723.78 11.32 Fixed Costs 573,610.00 Income(Contribution - Income) 196,113.78 Notes: New Variable Cost per unit (11- 2.64) 8.36 New fixed Costs = 509,400 + 64,210 573,610.00 New Sales Price = 21 - (2.64/2) 19.68 New Sales in Units = 62,960 *1.08 67,996.80
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