Gulf States Manufacturing has the following data from year 1 operations, which are to be used for developing year 2 budget estimates: Sales revenues (37,500 units) Manufacturing costs Materials Variable cash costs Fixed cash costs Depreciation (fixed) Marketing and administrative costs Marketing (variable, cash) Marketing depreciation Administrative (fixed, cash) Administrative depreciation Total costs Operating profits $2,500,000 $ 400,000 545,000 216,000 267,000 285,000 67,800 270,300 25, 200 $2,076,300 $ 423,700 All depreciation charges are fixed. Old manufacturing equipment with an annual depreciation charge of $29,100 will be replaced in year 2 with new equipment that will incur an annual depreciation charge of $42,000. Sales volume and prices are expected to increase by 8 percent and 3 percent, respectively. On a per-unit basis, expectations are that materials costs will increase by 6 percent and variable manufacturing costs will decrease by 5 percent. Fixed cash manufacturing costs are expected to decrease by 9 percent. Variable marketing costs will change with volume. Administrative cash costs are expected to increase by 10 percent. Inventories are kept at zero. Gulf States operates on a cash basis.

Gulf States Manufacturing has the following data from year 1 operations, which are to be used for developing year 2 budget estimates: Sales revenues (37,500 units) Manufacturing costs Materials Variable cash costs Fixed cash costs Depreciation (fixed) Marketing and administrative costs Marketing (variable, cash) Marketing depreciation Administrative (fixed, cash) Administrative depreciation Total costs Operating profits $2,500,000 $ 400,000 545,000 216,000 267,000 285,000 67,800 270,300 25, 200 $2,076,300 $ 423,700 All depreciation charges are fixed. Old manufacturing equipment with an annual depreciation charge of $29,100 will be replaced in year 2 with new equipment that will incur an annual depreciation charge of $42,000. Sales volume and prices are expected to increase by 8 percent and 3 percent, respectively. On a per-unit basis, expectations are that materials costs will increase by 6 percent and variable manufacturing costs will decrease by 5 percent. Fixed cash manufacturing costs are expected to decrease by 9 percent. Variable marketing costs will change with volume. Administrative cash costs are expected to increase by 10 percent. Inventories are kept at zero. Gulf States operates on a cash basis.

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter7: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 42E: Sales Revenue Approach, Variable Cost Ratio, Contribution Margin Ratio Arberg Companys controller...

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Howard Cooper, the president of Campbell Computer Services, needs your help. He wonders about the potential effects on the firm's net income if he changes the service rate that the firm charges its customers. The following basic data pertain to fiscal Year 3. Standard rate and variable costs Service rate per hour $ 85.00 Labor cost 37.00 Overhead cost 7.10 Selling, general, and administrative cost Expected fixed costs Facility maintenance Selling, general, and administrative 3.80 $522,000 142,000 Required: a. Prepare the pro forma income statement that would appear in the master budget if the firm expects to provide 45,000 hours of services in Year 3. b. A marketing consultant suggests to Mr. Cooper that the service rate may affect the number of service hours that the firm can achieve. According to the consultant's analysis, if Campbell charges customers $80 per hour, the firm can achieve 50,000 hours of services. Prepare a flexible budget using the consultant's assumption. c. The same…
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