The Central Valley Company is a manufacturing firm that produces and sells a single product. The company’s revenues and expenses for the last four months are given below.   Central Valley CompanyComparative Income Statement   March April   May     June     Sales in units   6,200     5,700     7,050     8,400     Sales revenue $ 762,600   $ 701,100   $ 867,150   $ 1,033,200     Less: Cost of goods sold   402,800     378,594     450,918     526,932                               Gross margin $ 359,800   $ 322,506   $ 416,232   $ 506,268     Less: Operating Expenses                                    Shipping expense $ 63,900   $ 53,600   $ 67,400   $ 65,000              Advertising expense   88,000     88,000     88,000     88,000              Salaries and commissions   164,400     137,000     167,500     171,500              Insurance expense   15,000     15,000     15,000     15,000              Amortization expense   48,000     48,000     48,000     48,000                                          Total operating expenses $ 379,300   $ 341,600   $ 385,900   $ 387,500                               Net income $ (19,500 ) $ (19,094 ) $ 30,332   $ 118,768                                 Required:   1. Management is concerned about the losses experienced during the spring and would like to know more about the cost behaviour. Develop a cost equation for each of the costs. (Do not round intermediate calculations. Round "Per Unit" answers to 2 decimal places.)           2. Assume that fixed costs are incurred uniformly throughout the year. Compute the annual break-even sales, and the profit if 79,000 units are sold during the year. (Round "Break-even sales" answer to nearest whole number.)           3. Calculate the change in profit if the selling price were reduced by $10.5 each and annual sales were to increase by 7,400 units.           4. Determine the change in profit if the company were to increase advertising by $112,000 and if this were to increase sales by 7,400 units.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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The Central Valley Company is a manufacturing firm that produces and sells a single product. The company’s revenues and expenses for the last four months are given below.
 
Central Valley Company
Comparative Income Statement
  March April   May     June  
  Sales in units   6,200     5,700     7,050     8,400  
  Sales revenue $ 762,600   $ 701,100   $ 867,150   $ 1,033,200  
  Less: Cost of goods sold   402,800     378,594     450,918     526,932  
                         
  Gross margin $ 359,800   $ 322,506   $ 416,232   $ 506,268  
  Less: Operating Expenses                        
           Shipping expense $ 63,900   $ 53,600   $ 67,400   $ 65,000  
           Advertising expense   88,000     88,000     88,000     88,000  
           Salaries and commissions   164,400     137,000     167,500     171,500  
           Insurance expense   15,000     15,000     15,000     15,000  
           Amortization expense   48,000     48,000     48,000     48,000  
                         
             Total operating expenses $ 379,300   $ 341,600   $ 385,900   $ 387,500  
                         
  Net income $ (19,500 ) $ (19,094 ) $ 30,332   $ 118,768  
                         
 
 
Required:
 
1. Management is concerned about the losses experienced during the spring and would like to know more about the cost behaviour. Develop a cost equation for each of the costs. (Do not round intermediate calculations. Round "Per Unit" answers to 2 decimal places.)
   
   
 
2. Assume that fixed costs are incurred uniformly throughout the year. Compute the annual break-even sales, and the profit if 79,000 units are sold during the year. (Round "Break-even sales" answer to nearest whole number.)
   
   
 
3. Calculate the change in profit if the selling price were reduced by $10.5 each and annual sales were to increase by 7,400 units.
   
   
 
4. Determine the change in profit if the company were to increase advertising by $112,000 and if this were to increase sales by 7,400 units.
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