Exercise 4-23/Priscilla Systems manufactures tape decks and currently sells 18,500units annually to producers of sound reproduction systems. The president of thecompany anticipates a 15%o increase in the cost per unit of direct labor onJanuary 1, 2010. He expects all other costs and expenses to remain unchanged.The president has asked you to assist him in developing the information he needsto formulate a reasonable product strategy for next year.You are satisfied that volume is the primary factor affecting costs andexpenses and have separated the semi-variable costs into their fixed and variablesegments. Beginning and ending inventories remain at a level of 1,000 units.Below are the current year data assembled for your analysis:P100Sales price per unitVariable costs per unit:Direct materialsP15Direct labor25Factory overhead, selling & administrative70Р30expenses30Contribution margin per unit (30%)Fixed costsP390,000REQUIRED:1. What inerease in selling price is necessary to cover the 15% inerease in directlabor cost and still maintain the current contribution margin ratio of 30%?2. How many tape decks must be sold to maintain the current operating incomeof P350,000 if the sales price remains at P100 and the 15% wage increasegoes into effect? (Hint: first compute the unit contribution margin.)3. The president believes that an additional P700,000 of machinery (to bedepreciated at 20% annually) will increase present capacity (20,000 units) by25%. If all tape decks produced can be sold at the present price of P100 perunit and the wage increase goes into effect, how would the estimatedoperating income before capacity is inereased compare with the estimatedoperating income at full capacity before and after the expansion.

Contribution margin: Contribution margin is defined as the excess of the selling price over the…

REQUIRED: 1. What increase in selling price is necessary to cover the 15% increase in direct labor cost and still maintain the current contribution margin ratio of 30%? 2. How many tape decks must be sold to maintain the current operating income of P350,000 if the sales price remains at P100 and the 15% wage inerease goes into effect? (Hint: first compute the unit contribution margin.) 3. The president believes that an additional P700,000 of machinery (to be depreciated at 20% annually) will increase present capacity (20,000 units) by 25%. If all tape decks produced can be sold at the present price of P100 per unit and the wage increase goes into effect, how would the estimated operating income before capacity is inereased compare with the estimated operating income at full capacity before and after the expansion.

REQUIRED: 1. What increase in selling price is necessary to cover the 15% increase in direct labor cost and still maintain the current contribution margin ratio of 30%? 2. How many tape decks must be sold to maintain the current operating income of P350,000 if the sales price remains at P100 and the 15% wage inerease goes into effect? (Hint: first compute the unit contribution margin.) 3. The president believes that an additional P700,000 of machinery (to be depreciated at 20% annually) will increase present capacity (20,000 units) by 25%. If all tape decks produced can be sold at the present price of P100 per unit and the wage increase goes into effect, how would the estimated operating income before capacity is inereased compare with the estimated operating income at full capacity before and after the expansion.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

New information suggests that Holliday Ltd’s monthly fixed costs will rise to £230,000. Marginal cost per unit will remain at £76 and expected demand is still 5,000 units. If at least £60,000 of profit is required by shareholders per month, what is the minimum selling price the company will have to charge per unit? a. £134 b. £143 c. £116 d. £58
A company requires $1400000 is sales to meet its net income target. Its contribution margin is 50% and fixed costs are $300000. What is the company's target net income?
15. The manager of the Cement Division expects the following results in 2022: Sales Variable Costs (60%) Contribution Margin P 49.600,00O 29, 760,000 19,840.000 Fixed Costs Profit P 7.840,000 The Division's investments are as follows: Plant equipment Working Capital ROI P 19,510.000 P 14.880.00O 22.8% The division has a target ROI of 30 percent, and the rmanager has asked you to determine how much sales volume the division would need in order to realize that. He states that the sales mix is relatively constant so variable costs should be close to 60 percent of sales, fixed costs and plant and equipment should remain constant, and working capital should vary closely with sales in the percentage reflected above. 15. The peso sales that the division needs in order to realize the 30 percen ROI target is: O a. P 19,829,032 O b. P 57,590,322 O c. P 44,373,871 O d. P 59,510,000
7. A company believes that if it spends $30,000 on an advertising campaign for one of its segments, there will be a 20% increment in the segment's sales. The contribution margin for the segment is 60% of sales. Sales for the segment are expected to be $400,000 before the advertising campaign. The relationship of costs to sales is expected to remain the same. The incremental net operating income if the advertising campaign is undertaken is expected to be: a. $48,000 b. $38,000 c. $18,000 d. $ 8,000 e. None of the above. The answer is Answer
1. Marginal Cost-Benefit Analysis As a financial analyst for Longview Products Company, you have been asked to evaluate a proposal for new, more efficient manufacturing equipment. The existing equipment will produce benefits over the next five years of $780,000 in today's dollars. The proposed new equipment will produce benefits of $970,000 in today's dollars over the same period. The installed cost of the new equipment is $300,000; the old equipment can be sold for $130,000. Apply marginal cost-benefit analysis to determine: a. The marginal benefits of the new equipment b. The marginal costs of the new equipment c. The net benefit of the new equipment d. Based on your calculations, what do you recommend? Why? e. What factors other than the costs and benefits should be considered before the final decision is made? 2. Interest verens Dividend Exnence
1. an industrial equipment company assumes that their crane model adds $10,000 in lifetime reliability value and $8,000 in servicevalue per crane. The equivalent competitor model is priced at $82,000. If the companydecides to discount the total value-added price by 15%, what is the final price to the consumer? I
21. Your factory has been offered a contract to produce a part for a new printer. The contract would last for 3 years and your cash flows from the contract would be $5.00 million per year. Your upfront setup costs to be ready to produce the part would be $8.00 million. Your discount rate for this contract is 8.0%. a. What does the NPV rule say you should do? b. If you take the contract, what will be the change in the value of your firm? a. The NPV of the project is $____million. (Round to two decimal places.) What should you do? (Select the best choice below.) b. If you take the contract, the value added to the firm will be $____million. (Round to two decimal places.)
Help!
17. A company has a process that results in 21000 pounds of product A…