Alberta Gauge Company, Limited, a small manufacturing company In Calgary, Alberta, manufactures three types of electrical gauges used in a variety of machinery. For many years the company has been profitable and has operated at capacity. However, In the last two years, prices on all gauges were reduced and selling expenses increased to meet competition and keep the plant operating at capacity. Second-quarter results for the current year, which follow, typify recent experience. ALBERTA GAUGE COMPANY, LIMITED Income Statement Second Quarter Req 2A Req 2B1 Req 282 Req 2C1 Req 2C2 Calculate the net impact on income before taxes for each of the three suggestions. E-Gauge Q-Gauge R-Gauge Sales Cost of goods sold Gross margin Selling and administrative expenses Income before taxes (in thousands) Q-Gauge $ 1,800 1,088 E-Gauge $ 1,150 820 R-Gauge $ 1,100 1,150 $ 712 380 $ 330 445 $ 332 $ (115) $ (285) $ (50) 235 Total $ 4,050 3,058 $ 992 1,060 $ (68) Alice Carlo, the company's president, is concerned about the results of the pricing, selling, and production prices. After reviewing the second-quarter results, she asked her management staff to consider the following three suggestions: ⚫ Discontinue the R-gauge line Immediately. R-gauges would not be returned to the product line unless the problems with the gauge can be identified and resolved. • Increase quarterly sales promotion by $125,000 on the Q-gauge product line in order to increase sales volume by 15 percent. Cut production on the E-gauge line by 50 percent, and cut the traceable advertising and promotion for this line to $30,000 each quarter. Jason Sperry, the controller, suggested a more careful study of the financial relationships to determine the possible effects on the company's operating results of the president's proposed course of action. The president agreed and assigned JoAnn Brower, the assistant controller, to prepare an analysis. Brower has gathered the following Information. All three gauges are manufactured with common equipment and facilities. The selling and administrative expense is allocated to the three gauge lines based on average sales volume over the past three years. • Special selling expenses (primarily advertising, promotion, and shipping) are incurred for each gauge as follows: Type of Gauges Q-gauge E-gauge R-gauge Quarterly Advertising and Promotion $ 235,000 125,000 140,000 Shipping Expenses $ 20 per unit 14 per unit 20 per unit ⚫ The unit manufacturing costs for the three products are as follows: Manufacturing cost type Direct material Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total 20.00 Q-Gauge E-Gauge R-Gauge $ 31.00 $ 17.00 $ 60.00 40.00 70.00 45.00 30.00 70.00 20.00 15.00 30.00 $136.00 $ 82.00 $ 230.00 Increase (decrease) in segment contribution < Req 2A Req 2B1 > Req 2A Req 2B1 Req 2B2 Req 2C1 Req 2C2 Calculate contribution margin for R-gauge. Contribution margin Req 2A Req 2B1 Req 282 Req 2C1 Req 2C2 Calculate the contribution per direct-labor dollar for Q-gauge and E-gauge. Note: Round your answers to 2 decimal places. Contribution per direct-labor dollar E-Gauge Q-Gauge ⚫ The unit sales prices for the three products are as follows: Q-gauge E-gauge $225 115 220 R-gauge . The company is manufacturing at capacity and is selling all the gauges It produces

Alberta Gauge Company, Limited, a small manufacturing company In Calgary, Alberta, manufactures three types of electrical gauges used in a variety of machinery. For many years the company has been profitable and has operated at capacity. However, In the last two years, prices on all gauges were reduced and selling expenses increased to meet competition and keep the plant operating at capacity. Second-quarter results for the current year, which follow, typify recent experience. ALBERTA GAUGE COMPANY, LIMITED Income Statement Second Quarter Req 2A Req 2B1 Req 282 Req 2C1 Req 2C2 Calculate the net impact on income before taxes for each of the three suggestions. E-Gauge Q-Gauge R-Gauge Sales Cost of goods sold Gross margin Selling and administrative expenses Income before taxes (in thousands) Q-Gauge $ 1,800 1,088 E-Gauge $ 1,150 820 R-Gauge $ 1,100 1,150 $ 712 380 $ 330 445 $ 332 $ (115) $ (285) $ (50) 235 Total $ 4,050 3,058 $ 992 1,060 $ (68) Alice Carlo, the company's president, is concerned about the results of the pricing, selling, and production prices. After reviewing the second-quarter results, she asked her management staff to consider the following three suggestions: ⚫ Discontinue the R-gauge line Immediately. R-gauges would not be returned to the product line unless the problems with the gauge can be identified and resolved. • Increase quarterly sales promotion by $125,000 on the Q-gauge product line in order to increase sales volume by 15 percent. Cut production on the E-gauge line by 50 percent, and cut the traceable advertising and promotion for this line to $30,000 each quarter. Jason Sperry, the controller, suggested a more careful study of the financial relationships to determine the possible effects on the company's operating results of the president's proposed course of action. The president agreed and assigned JoAnn Brower, the assistant controller, to prepare an analysis. Brower has gathered the following Information. All three gauges are manufactured with common equipment and facilities. The selling and administrative expense is allocated to the three gauge lines based on average sales volume over the past three years. • Special selling expenses (primarily advertising, promotion, and shipping) are incurred for each gauge as follows: Type of Gauges Q-gauge E-gauge R-gauge Quarterly Advertising and Promotion $ 235,000 125,000 140,000 Shipping Expenses $ 20 per unit 14 per unit 20 per unit ⚫ The unit manufacturing costs for the three products are as follows: Manufacturing cost type Direct material Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total 20.00 Q-Gauge E-Gauge R-Gauge $ 31.00 $ 17.00 $ 60.00 40.00 70.00 45.00 30.00 70.00 20.00 15.00 30.00 $136.00 $ 82.00 $ 230.00 Increase (decrease) in segment contribution < Req 2A Req 2B1 > Req 2A Req 2B1 Req 2B2 Req 2C1 Req 2C2 Calculate contribution margin for R-gauge. Contribution margin Req 2A Req 2B1 Req 282 Req 2C1 Req 2C2 Calculate the contribution per direct-labor dollar for Q-gauge and E-gauge. Note: Round your answers to 2 decimal places. Contribution per direct-labor dollar E-Gauge Q-Gauge ⚫ The unit sales prices for the three products are as follows: Q-gauge E-gauge $225 115 220 R-gauge . The company is manufacturing at capacity and is selling all the gauges It produces

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter7: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 64P: Suppose that Kicker had the following sales and cost experience (in thousands of dollars) for May of...

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