Chalmers Corporation operates in multiple areas of the globe, and relatively large price changes are common. Presently, the company sells 156,200 units for $50 per unit. The variable production costs are $20, and fixed costs amount to $2,084,500. Production engineers have advised management that they expect unit labor costs to rise by 10 percent and unit materials costs to rise by 15 percent in the coming year. Of the $20 variable costs, 25 percent are from labor and 50 percent are from materials. Variable overhead costs are expected to increase by 20 percent. Sales prices cannot increase more than 12 percent. It is also expected that fixed costs will rise by 10 percent as a result of increased taxes and other miscellaneous fixed charges. The company wishes to maintain the same level of profit in real dollar terms. It is expected that to accomplish this objective, profits must increase by 8 percent during the year. Required: A. Compute the volume in units and the dollar sales level necessary to maintain the present profit level, assuming that the maximum price increase is implemented. B. Compute the volume of sales and the dollar sales level necessary to provide the 8 percent increase in profits, assuming that the maximum price increase is implemented. C. If the volume of sales were to remain at 156,200 units, calculate the new price that would be required to attain the 8 percent increase in profits? Calculate the new price. Note: Round your answer to 2 decimal places

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Chalmers Corporation operates in multiple areas of the globe, and relatively large price changes are common. Presently, the company sells 156,200 units for $50 per unit. The variable production costs are $20, and fixed costs amount to $2,084,500. Production engineers have advised management that they expect unit labor costs to rise by 10 percent and unit materials costs to rise by 15 percent in the coming year. Of the $20 variable costs, 25 percent are from labor and 50 percent are from materials. Variable overhead costs are expected to increase by 20 percent. Sales prices cannot increase more than 12 percent. It is also expected that fixed costs will rise by 10 percent as a result of increased taxes and other miscellaneous fixed charges. The company wishes to maintain the same level of profit in real dollar terms. It is expected that to accomplish this objective, profits must increase by 8 percent during the year.

Required:

A. Compute the volume in units and the dollar sales level necessary to maintain the present profit level, assuming that the maximum price increase is implemented.

B. Compute the volume of sales and the dollar sales level necessary to provide the 8 percent increase in profits, assuming that the maximum price increase is implemented.

C. If the volume of sales were to remain at 156,200 units, calculate the new price that would be required to attain the 8 percent increase in profits? Calculate the new price. Note: Round your answer to 2 decimal places.

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