Buggs-Off Corporation produces and sells a line of mosquito repellants that are sold usually all year round. The product sells at $100 per box. The following cost data has been prepared for its estimated upper and lower limits of activity for the year ended December 31, 2020. Lower Limit Upper Limit Production (# of boxes) 4,000 6,000 Production Costs: Direct Materials $60,000 $90,000 Direct Labour 80,000 120,000 Overhead: Indirect Materials.... 25,000 37,500 Indirect Labour 40,000 50,000 Depreciation 20,000 20,000 Selling & Administrative Expenses: Sales Salaries 50,000 65,000 Office Salaries 30,000 30,000 Advertising 45,000 45,000 Other. _15.000 _20.000 Total $365,000 $477,500 Required: f) The President of Buggs-Off is under pressure from shareholders to increase operating income by 20% in 2021. Management expects per unit data and total fixed costs to remain the same in 2021. Using the equation method, compute the number of units that would have to be sold in 2021 to reach the shareholders desired profit level. Is this a realistic goal? g) Briefly explain the impact of each of the following scenarios on the contribution margin per unit and the break-even point: (i) Sales volume increases (ii) Total fixed cost decreases (iii) Selling price per unit increases (iv) Variable cost per unit increases
Buggs-Off Corporation produces and sells a line of mosquito repellants that are sold usually all year round. The product sells at $100 per box. The following cost data has been prepared for its estimated upper and lower limits of activity for the year ended December 31, 2020. Lower Limit Upper Limit Production (# of boxes) 4,000 6,000 Production Costs: Direct Materials $60,000 $90,000 Direct Labour 80,000 120,000 Overhead: Indirect Materials.... 25,000 37,500 Indirect Labour 40,000 50,000 Depreciation 20,000 20,000 Selling & Administrative Expenses: Sales Salaries 50,000 65,000 Office Salaries 30,000 30,000 Advertising 45,000 45,000 Other. _15.000 _20.000 Total $365,000 $477,500 Required: f) The President of Buggs-Off is under pressure from shareholders to increase operating income by 20% in 2021. Management expects per unit data and total fixed costs to remain the same in 2021. Using the equation method, compute the number of units that would have to be sold in 2021 to reach the shareholders desired profit level. Is this a realistic goal? g) Briefly explain the impact of each of the following scenarios on the contribution margin per unit and the break-even point: (i) Sales volume increases (ii) Total fixed cost decreases (iii) Selling price per unit increases (iv) Variable cost per unit increases
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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