Most manufacturing companies have gross margin goals, and Murphy's is no different. Murphy's makes lightweight backpacks that are suitable for a number of purposes. Management at the company has dictated a strict 60% gross margin goal, and, to date, it has been able to achieve it. Some of the company's financial information is as follows. Sales $ 625,000 Variable selling expenses $ 2.50/unit Fixed selling, general, and administrative expenses $ 120,000 Questions: a. Given the above information, what is the most Murphy's can incur in manufacturing costs and still meet its gross margin goal? b. If the fixed portion of Murphy's manufacturing cost is $87,500, what combination of selling price and variable manufacturing costs would fit the corporate gross margin percentage goal, assuming sales volume is 25,000 units? c. Assume now that instead of having a corporate margin goal, the company switches to a contribution margin goal. If this new contribution margin goal is set at 60%, will the company meet it under the sales, volume, and cost situation described above? d. Company management has recently noticed that accidents in the factory have been happening quite frequently. As a result, they are considering the addition of another supervisor in the plant. How would this affect the company's gross margin percentage? If plant employees are part of a profit-sharing plan, how might employees react to this move?
Most manufacturing companies have gross margin goals, and Murphy's is no different. Murphy's makes lightweight backpacks that are suitable for a number of purposes. Management at the company has dictated a strict 60% gross margin goal, and, to date, it has been able to achieve it. Some of the company's financial information is as follows.
| Sales | $ 625,000 |
| Variable selling expenses | $ 2.50/unit |
| Fixed selling, general, and administrative expenses | $ 120,000 |
Questions:
a. Given the above information, what is the most Murphy's can incur in
b. If the fixed portion of Murphy's manufacturing cost is $87,500, what combination of selling price and variable manufacturing costs would fit the corporate gross margin percentage goal, assuming sales volume is 25,000 units?
c. Assume now that instead of having a corporate margin goal, the company switches to a contribution margin goal. If this new contribution margin goal is set at 60%, will the company meet it under the sales, volume, and cost situation described above?
d. Company management has recently noticed that accidents in the factory have been happening quite frequently. As a result, they are considering the addition of another supervisor in the plant. How would this affect the company's gross margin percentage? If plant employees are part of a profit-sharing plan, how might employees react to this move?
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