Elite Products Inc. manufactures fuel injection systems for high performance V8 engines. The systems can be used on any make of car by installing the correct software chip for that make. The company is currently at 80% of capacity manufacturing 30,000 systems per year. The systems sell for $1,200 each and are sold to independent high performance retail auto part stores. Elite Products Inc. has been approached by HighSpeed Auto Inc. a large auto parts chain to provide them with the fuel injection system. In contract negotiation the chain has agree to purchase 7,500 systems which will get Elite Product's production to full capacity. However, HighSpeed Auto Inc. wants a ten percent quaintly discount on the additional 7,500 systems it purchases or it will not enter into the contract. The current manufacturing costs for the systems are as follows: Raw material: $575/unit Direct labor $150/unit Variable Mfg. OH: $ 80/unit Fixed Mfg OH: $9,000,000/year Other costs of the company are as follows: Variable Selling Exp $ 6/unit Variable G&A Exp: $ 1unit Fixed Selling Exp: Fixed G&A Exp: $2,000,000/year $1,500,000/year Since Elite Products will be increasing production by twenty percent the following cost will change. Fixed manufacturing overhead will increase by $140,000 per year because of higher electrical usage. Because of a sales commission break to be paid for any units sold above 30,000 per year variable Selling expense will increase by $2 per unit for the additional 7,500 units only, Raw Material cost will drop to $517 per unit for the additional production only because of a quantity discount from the firm's vendors on orders over 30,000 units. Required: Prepare a Contribution Margin Income Statement for the firm prior to and after accepting the contract. Use the attached Excel template provided WORKSHEET FOR PROBLEM 1-CONTRIBUTION MARGIN WORKSHEET CURRENT POSITION W/O CONTR. PRICE/COST TOTAL UNITS CHANGE PRICE/COST TOTAL TOTAL WITH CONTRACT REVENUE/COST UNITS SALES VARIABLE COST RAW MATERIAL DIRECT LABOR VARIABLE MFG OH VARIABLE SELLING EXP VARIABLE G&A TOTAL VARIABLE COST CONTRIBUTION MARGIN FIXED COST FIXED MFG OH FIXED SELLING EXP FIXED G&A TOTAL FIXED COST PROFIT (LOSS) 0.0
Elite Products Inc. manufactures fuel injection systems for high performance V8 engines. The systems can be used on any make of car by installing the correct software chip for that make. The company is currently at 80% of capacity manufacturing 30,000 systems per year. The systems sell for $1,200 each and are sold to independent high performance retail auto part stores. Elite Products Inc. has been approached by HighSpeed Auto Inc. a large auto parts chain to provide them with the fuel injection system. In contract negotiation the chain has agree to purchase 7,500 systems which will get Elite Product's production to full capacity. However, HighSpeed Auto Inc. wants a ten percent quaintly discount on the additional 7,500 systems it purchases or it will not enter into the contract. The current manufacturing costs for the systems are as follows: Raw material: $575/unit Direct labor $150/unit Variable Mfg. OH: $ 80/unit Fixed Mfg OH: $9,000,000/year Other costs of the company are as follows: Variable Selling Exp $ 6/unit Variable G&A Exp: $ 1unit Fixed Selling Exp: Fixed G&A Exp: $2,000,000/year $1,500,000/year Since Elite Products will be increasing production by twenty percent the following cost will change. Fixed manufacturing overhead will increase by $140,000 per year because of higher electrical usage. Because of a sales commission break to be paid for any units sold above 30,000 per year variable Selling expense will increase by $2 per unit for the additional 7,500 units only, Raw Material cost will drop to $517 per unit for the additional production only because of a quantity discount from the firm's vendors on orders over 30,000 units. Required: Prepare a Contribution Margin Income Statement for the firm prior to and after accepting the contract. Use the attached Excel template provided WORKSHEET FOR PROBLEM 1-CONTRIBUTION MARGIN WORKSHEET CURRENT POSITION W/O CONTR. PRICE/COST TOTAL UNITS CHANGE PRICE/COST TOTAL TOTAL WITH CONTRACT REVENUE/COST UNITS SALES VARIABLE COST RAW MATERIAL DIRECT LABOR VARIABLE MFG OH VARIABLE SELLING EXP VARIABLE G&A TOTAL VARIABLE COST CONTRIBUTION MARGIN FIXED COST FIXED MFG OH FIXED SELLING EXP FIXED G&A TOTAL FIXED COST PROFIT (LOSS) 0.0
Chapter1: Financial Statements And Business Decisions
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