What is the value of erosion? CCool Comfort currently sells 300 Class A spas, 450 Classspas, and 200 deluxe model spas each year. The firm isconsidering adding a mid-class spa and expects that, if itdoes, it can sell 375 of them. However, if the new spa isadded, Class A sales are expected to decline to 225 unitswhile Class C sales are expected to decline to 200. Thesales of the deluxe model will not be affected. Class Aspas sell for an average of $12,000 each. Class C spas arepriced at $6,000 and the deluxe model sells for $17,000each. The new mid-range spa will sell for $8,000. What isthe value of erosion?a. $2,400,000b. $1,200,000c. $3,900,000d. $600,000e. $1,800,000

Approach to solving the question:To calculate the value of erosion, we need to determine how much…

Answered: C Cool Comfort currently sells 300…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter3: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 9EB: Baghdad Company produces a single product. They have recently received the result of a market survey...

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Bubbly Waters currently sells 320 Class A spas, 470 Class C spas, and 220 deluxe model spas each year. The firm is considering adding a mid-class spa and expects that if it does, it can sell 395 units per year. However, if the new spa is added, Class A sales are expected to decline to 235 units while the Class C sales are expected to increase to 495. The sales of the deluxe model will not be affected. Class A spas sell for an average of $12,300 each. Class C spas are priced at $6,200 and the deluxe models sell for $17,200 each. The new mid-range spa will sell for $8,200. What annual sales figure should you use in your analysis?
Hyperion Inc., currently sells its latest high-speed color printer, the Hyper 500, for $350. Its cost of goods sold for the Hyper 500 is $200 per unit, and this year's sales (at the current price of $350) are expected to be 20,000 units. Hyperion plans to lower the price of the Hyper 500 to $300 one year from now. a. Suppose Hyperion considers dropping the price to $300 immediately, (rather than waiting one year). By doing so, it expects to increase this year's sales by 25% to 25,000 units. What would be the incremental impact on this year's EBIT of such a price drop? b. Suppose that for each printer sold, Hyperion expects additional sales of $75 per year on ink cartridges for the three-year life of the printer, and Hyperion has a gross profit margin of 70% on ink cartridges. What is the incremental impact on EBIT for the next three years of dropping the price immediately (rather than waiting one year)?
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Expo Lube is interested in producing and selling an industrial line of oil filters. Market research indicates that wholesale customers are currently willing to pay $8 for similar filters, and that Expo Lube could sell 80,000 units per year at that price. a. If Expo Lube requires a 19 percent return on sales, what is its target cost for the proposed industrial line of filters? b. Assume that market research reveals several of Expo Lube’s direct competitors are likely to lower the wholesale price of similar filters to $7 per unit. To remain competitive, what will Expo Lube’s target cost have to be to maintain a 19 percent return on sales? c. At a wholesale price of $7, Expo Lube estimates that it can sell 83,100 industrial filters per year instead of 80,000 units. Assuming its target costs are attainable, how much more or less profit per year will the company earn at the $7 wholesale price compared to the initial wholesale price estimate of $8?
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RG Motors has been approached by a new customer with an offer to purchase 5,000 units of its hand-free, Wi-Fi-enabled automotive model – the SMART, at a price of RM18,000 per automobile. RG’s other sales would not be affected by this new customer offer. RG normally produces 100,000 units of its SMART model per year but only plans to produce and sell 90,000 units in the coming year. The normal sales price is RM35,000 per SMART. Unit cost information for the normal level of activity is as follows: Table 7: Production Costs Total Cost RM Direct materials 10,000 Direct labor 2,000 Variable overhead 4,000 Fixed overhead 8,000 Total 24,000 Fixed overhead will not be affected by whether or not the special order is accepted. Required: (i) List the relevant costs and benefits of the two alternatives of the special order. (ii) Propose whether operating income increase or decrease if the order is accepted with calculation details.
John Deere Tractors is considering the introduction of a mid-priced version of the firm's DC6900 lawn and garden tractor product line the DC6900-X. The DC6900-X would sell for $3,900 with unit variable costs of $1,800. Projections made by an independent marketing research firm indicate that the DC6900-X would achieve a sales volume of 500,000 units next year, in its first year of commercialization. One-half of the first year's volume would come from competitors' products and market growth. However, a consumer research study indicates that 30 percent of the DC6900-X sales volume would come from the higher-priced DC600-Omega tractor, which sells for $5,900 (with unit variable costs of $2,200). Another 20 percent of the DC00-X sales volume would come from the economy-priced DC6900-Alpha tractor, priced at $2,500 (with unit variable costs of $1,200). The DC6900-Omega unit volume is expected to be 400,000 units next year, and the DC6900-Alpha is expected to achieve a 600,000-unit sales…
Baghdad Company produces a single product. They have recently received the result of a market survey that indicates that they can increase the retail price of their product by 10% without losing customers or market share. All other costs will remain unchanged. If they enact the 10% price increase, what will be their new break-even point in units and dollars? Their most recent CVP analysis is:

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