Matipid Division of Expenditures Company expects the following results for 2019: Unit sales 70,000 Unit selling price P10 Unit variable cost P4 Total fixed costs P300,000 Total investment P500,000 The minimum required ROI is 15 percent, and divisions are evaluated on residual income. A foreign customer has approached Matipid’s manager with an offer to buy 10,000 units at P7 each. If Matipid accepts the order, it would not lose any of the 70,000 units at the regular price. Accepting the order would increase fixed costs by P10,000 and investment by P40,000. What is the minimum price that Matipid could accept for the order and still maintain its expected residual income?
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Matipid Division of Expenditures Company expects the following results for 2019:
Unit sales 70,000
Unit selling price P10
Unit variable cost P4
Total fixed costs P300,000
Total investment P500,000
The minimum required ROI is 15 percent, and divisions are evaluated on residual income. A
foreign customer has approached Matipid’s manager with an offer to buy 10,000 units at P7 each. If
Matipid accepts the order, it would not lose any of the 70,000 units at the regular price. Accepting the
order would increase fixed costs by P10,000 and investment by P40,000.
What is the minimum price that Matipid could accept for the order and still maintain its expected
residual income?
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