29. Professional ethics, CVP analysis. Allen Corporation manufactures a plastic mold, LX201, used in the computer industry. Synthetic data from the Company's Results Account for 2003 are presented as follows: Income $5.000.000 Variable costs 3.000.000 Fixed costs 2.160.000 Operating profit (loss) $ (160.000) Jane Woodall, president of Allen Corporation, is very concerned about the company's negative profitability. She asks Max Lemond, the production manager, and Lester Bush, the chief accountant, to consider whether there are no ways to reduce costs. After two weeks, Max returns with a proposal to reduce variable costs to 52% of revenue by reducing the expenses that the company currently incurs in connection with the corresponding disposal of plastic waste. Lester is concerned that such a measure could expose the company to possible prosecutions for pollution. He says to Max, "We should estimate some of these potential costs related to environmental pollution and include them in the analysis." "You can't do that," Max replies. "We're not breaking any low. There is a possibility to bear the costs of depollution in the future, but if we mention this possibility now, the proposal will not be accepted, since our management always expects such costs to be higher than they really are. The market is relentless and we are in danger of bankruptcy. You don't want all our colleagues to lose their jobs. The only reason our competitors are profitable is because they're doing exactly what I'm proposing to do now." Request: 1.Calculate the revenue needed for Allen to reach the break-even point in 2003. 2.Calculate the revenue needed for Allen to reach the break-even point in 2003 if variable costs account for 52% of revenue. 3.Calculate Allen's operating profit in 2003 if variable costs account for 52% of revenue. 4. Given Max Lemond's comments, what should Lester Bush do?
29. Professional ethics, CVP analysis. Allen Corporation manufactures a plastic mold, LX201, used in the computer industry. Synthetic data from the Company's Results Account for 2003 are presented as follows: Income $5.000.000 Variable costs 3.000.000 Fixed costs 2.160.000 Operating profit (loss) $ (160.000) Jane Woodall, president of Allen Corporation, is very concerned about the company's negative profitability. She asks Max Lemond, the production manager, and Lester Bush, the chief accountant, to consider whether there are no ways to reduce costs. After two weeks, Max returns with a proposal to reduce variable costs to 52% of revenue by reducing the expenses that the company currently incurs in connection with the corresponding disposal of plastic waste. Lester is concerned that such a measure could expose the company to possible prosecutions for pollution. He says to Max, "We should estimate some of these potential costs related to environmental pollution and include them in the analysis." "You can't do that," Max replies. "We're not breaking any low. There is a possibility to bear the costs of depollution in the future, but if we mention this possibility now, the proposal will not be accepted, since our management always expects such costs to be higher than they really are. The market is relentless and we are in danger of bankruptcy. You don't want all our colleagues to lose their jobs. The only reason our competitors are profitable is because they're doing exactly what I'm proposing to do now." Request: 1.Calculate the revenue needed for Allen to reach the break-even point in 2003. 2.Calculate the revenue needed for Allen to reach the break-even point in 2003 if variable costs account for 52% of revenue. 3.Calculate Allen's operating profit in 2003 if variable costs account for 52% of revenue. 4. Given Max Lemond's comments, what should Lester Bush do?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Hi, I have this problem at accounting and dont know how to do it.
Transcribed Image Text:29. Professional ethics, CVP analysis. Allen Corporation manufactures a plastic mold, LX201, used in the computer industry. Synthetic data from
the Company's Results Account for 2003 are presented as follows:
Income
$ 5.000.000
Variable costs
3.000.000
Fixed costs
2.160.000
Operating profit (loss)
$(160.000)
Jane Woodall, president of Allen Corporation, is very concerned about the company's negative profitability. She asks Max Lemond, the
production manager, and Lester Bush, the chief accountant, to consider whether there are no ways to reduce costs.
After two weeks, Max returns with a proposal to reduce variable costs to 52% of revenue by reducing the expenses that the company
currently incurs in connection with the corresponding disposal of plastic waste. Lester is concerned that such a measure could expose the
company to possible prosecutions for pollution. He says to Max, "We should estimate some of these potential costs related to environmental
pollution and include them in the analysis." "You can't do that," Max replies. "We're not breaking any low. There is a possibility to bear the costs
of depollution in the future, but if we mention this possibility now, the proposal will not be accepted, since our management always expects
such costs to be higher than they really are. The market is relentless and we are in danger of bankruptcy. You don't want all our colleagues to
lose their jobs. The only reason our competitors are profitable is because they're doing exactly what I'm proposing to do now."
Request:
1.Calculate the revenue needed for Allen to reach the break-even point in 2003.
2.Calculate the revenue needed for Allen to reach the break-even point in 2003 if variable costs account for 52% of revenue.
3.Calculate Allen's operating profit in 2003 if variable costs account for 52% of revenue.
4. Given Max Lemond's comments, what should Lester Bush do?
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