As a newly hired management accountant, you have been asked to prepare a profit plan for the company for which you work. As part of this task, you've been asked to do some what-if analyses. Following is the budgeted information regarding the coming year. Selling price per unit Variable cost per unit Fixed costs (per year) Required: $ 100.00 60.00 1,113,040 1. What is the breakeven volume, in units and dollars, for the coming year? 2. Assume that the goal of the company is to earn a pretax (operating) profit of $316,000 for the coming year. How many units would the company have to sell to achieve this goal? 3. Assume that of the $60 variable cost per unit the labor-cost component is $27. Current negotiations with the employees of the company indicate some uncertainty regarding the labor cost component of the variable cost figure presented above. What is the effect on the breakeven point in units if selling price and fixed costs are as planned, but the labor cost for the coming year is 4% higher than anticipated? What if labor costs are 6% higher than anticipated? What if labor costs turn out to be 8% higher than anticipated? 4. Assume now that management is convinced that labor costs will be 5% higher than originally planned when the budget for the year was put together. What selling price per unit must the company charge to maintain the budgeted ratio of contribution margin to sales? (Hint: Use the Goal Seek function in Excel to answer this question.)
As a newly hired management accountant, you have been asked to prepare a profit plan for the company for which you work. As part of this task, you've been asked to do some what-if analyses. Following is the budgeted information regarding the coming year. Selling price per unit Variable cost per unit Fixed costs (per year) Required: $ 100.00 60.00 1,113,040 1. What is the breakeven volume, in units and dollars, for the coming year? 2. Assume that the goal of the company is to earn a pretax (operating) profit of $316,000 for the coming year. How many units would the company have to sell to achieve this goal? 3. Assume that of the $60 variable cost per unit the labor-cost component is $27. Current negotiations with the employees of the company indicate some uncertainty regarding the labor cost component of the variable cost figure presented above. What is the effect on the breakeven point in units if selling price and fixed costs are as planned, but the labor cost for the coming year is 4% higher than anticipated? What if labor costs are 6% higher than anticipated? What if labor costs turn out to be 8% higher than anticipated? 4. Assume now that management is convinced that labor costs will be 5% higher than originally planned when the budget for the year was put together. What selling price per unit must the company charge to maintain the budgeted ratio of contribution margin to sales? (Hint: Use the Goal Seek function in Excel to answer this question.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Question
Transcribed Image Text:As a newly hired management accountant, you have been asked to prepare a profit plan for the company for which you work. As part
of this task, you've been asked to do some what-if analyses. Following is the budgeted Information regarding the coming year:
Selling price per unit
Variable cost per unit
Fixed costs (per year)
Required:
$ 100.00
60.00
1,113,040
1. What is the breakeven volume, in units and dollars, for the coming year?
2. Assume that the goal of the company is to earn a pretax (operating) profit of $316,000 for the coming year. How many units would
the company have to sell to achieve this goal?
3. Assume that of the $60 variable cost per unit the labor-cost component is $27. Current negotiations with the employees of the
company indicate some uncertainty regarding the labor cost component of the variable cost figure presented above. What is the effect
on the breakeven point in units if selling price and fixed costs are as planned, but the labor cost for the coming year is 4% higher than
anticipated? What if labor costs are 6% higher than anticipated? What if labor costs turn out to be 8% higher than anticipated?
4. Assume now that management is convinced that labor costs will be 5% higher than originally planned when the budget for the year
was put together. What selling price per unit must the company charge to maintain the budgeted ratio of contribution margin to sales?
(Hint: Use the Goal Seek function in Excel to answer this question.)
Complete this question by entering your answers in the tabs below.
Required 1 Required 2
Required 3
Required 4
Assume that of the $60 variable cost per unit the labor-cost component is $27. Current negotiations with the employees of the
company indicate some uncertainty regarding the labor cost component of the variable cost figure presented above. What is the effect
on the breakeven point in units if selling price and fixed costs are as planned, but the labor cost for the coming year is 4% higher than
anticipated? What if labor costs are 6% higher than anticipated? What if labor costs turn out to be 8% higher than anticipated? (Round
"Per Unit" and "% Change in Breakeven Point" answers to 2 decimal places (1.e. .0213 = 2.13%) and other answers to the nearest
whole number.)
Situation
% Change in DL
Cost Component
(given)
Revised
Variable Cost
per Unit
Revised
Contribution
Margin per
Unit
Breakeven
volume
(units)
Unit
Change in
Breakeven
Point
% Change in
Breakeven
Point
Baseline
0.00%
%
1
4.00 %
%
2
6.00 %
%
3
8.00 %
%
< Required 2
Required 4 >
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