The divisional manager has decided to increase the advertising budget by $250,000. This will increase sales revenues by $1 million. By how much will operating income increase or decrease as a result of this action? Use your answers from part 1 to determine the amount.

The divisional manager has decided to increase the advertising budget by $250,000. This will increase sales revenues by $1 million. By how much will operating income increase or decrease as a result of this action? Use your answers from part 1 to determine the amount.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter1: Introduction To Cost Management

Section: Chapter Questions

Problem 6E: Each of the following scenarios requires the use of accounting information to carry out one or more...

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Each of the following scenarios requires the use of accounting information to carry out one or more of the following managerial activities: (1) planning, (2) control and evaluation, (3) continuous improvement, or (4) decision making. a. MANAGER: At the last board meeting, we established an objective of earning an after-tax profit equal to 20 percent of sales. I need to know the revenue that we need to earn in order to meet this objective, given that we have 250,000 to spend on the promotional campaign. Once I have estimated sales in units, we then need to outline a promotional campaign that conforms to our budget and that will take us where we want to be. However, to compute the targeted sales revenue, I need to know the unit sales price, the unit variable cost, and the associated fixed production and support costs. I also need to know the tax rate. b. MANAGER: We have problems with our procurement process. Our accounts payable department is spending 80 percent of its time resolving discrepancies between the purchase order, receiving order, and suppliers invoice. Incorrect part numbers on the purchase orders, incorrect quantities ordered, and wrong parts sent (or the incorrect quantity) are just a few examples of sources of discrepancies. A complete redesign of the process has been suggested, which will allow us to eliminate virtually all of the errors and, at the same time, significantly reduce the number of clerks needed in purchasing, receiving, and accounts payable. This redesign promises to significantly reduce costs, decrease lead time, and increase customer satisfaction. c. MANAGER: This overhead cost report indicates that we have spent significantly more on inspection, purchasing, and production than was budgeted. An investigation has revealed that the source of the problem is faulty components from suppliers. A supplier evaluation has revealed that by selecting five suppliers with the best quality records (out of 15 currently used), the number of defective components will be dramatically reduced, thus producing significant overhead savings by reducing the demand for inspections, reordering, and rework. d. MANAGER: A large local firm has approached me and has offered to sell us one of the components used in our small enginesa component that we are currently producing internally. I need to know costs that we would avoid if this component is purchased so that I can assess the economic merits of this offer. e. MANAGER: Currently, our deluxe lawn mower is losing money. We need to increase profits. I would like to know how much our profits would be if we reduce our variable costs by 50 per mower while maintaining our current sales volume. Also, marketing claims that if we increase advertising expenditures by 1,000,000 and cut prices by 15 percent, we can increase the number of mowers sold by 25 percent. I would like to know which approach offers the most profit, or if a combination of the approaches may be best. f. MANAGER: We are implementing a major quality improvement program. We will be increasing the investment in prevention and detection activities with the expectation of driving down both internal and external failure costs. I expect to see trend reports for all categories of quality costs. I want to see if improving quality really does reduce costs and improve profitability. g. MANAGER: Our engineering design department has proposed a new design for our product. The new design promises to reduce post-purchase costs and, as a consequence, increase market share. I need to know the cost of producing this new design because it uses some new components and requires some different manufacturing processes. I would then like to have a projected income statement based on the new market share and new production costs. The planned selling price will be the same, or maybe even 10 percent lower. Projections based on the two price scenarios would be needed. h. MANAGER: My engineers have said that by redesigning our two main production processes, we can reduce move time by 90 percent and wait time by 85 percent. This would decrease cycle time and virtually eliminate the need to carry finished goods inventories. On-time deliveries would also increase dramatically. This would produce cost savings of nearly 20,000,000 per year. Market share and revenues would also increase. Required: 1. Describe each of the four managerial responsibilities. 2. Identify the managerial activity or activities applicable for each scenario, and indicate the role of accounting information in the activity.
please answer within the format by providing formula the detailed workingPlease provide answer in text (Without image)Please provide answer in text (Without image)Please provide answer in text (Without image) Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his division’s return on investment (ROI), which has been above 24% each of the last three years. Casey is considering a capital budgeting project that would require a $4,300,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company’s discount rate is 20%. The project would provide net operating income each year for five years as follows: Sales $ 4,200,000 Variable expenses 1,920,000 Contribution margin 2,280,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 780,000 Depreciation 860,000 Total fixed expenses 1,640,000 Net operating income $ 640,000 Click here to…
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You have been hired by the McClosky Corporation and they manufacture industrial dye. Milestone 3:I. Budgeted Balance SheetJ. Cash BudgetK. Budget Presentation and please address the following questions:(1) The sales manager would like to increase the sales price by 10 next quarter, what will be the projected revenues be for the 2nd quarter. (2) The production manager would like to purchase new equipment for next quarter due to the fact that their competitor has purchased equipment which cost $50,000. Will the company be able to make the purchase or will you need more information?(3) The CEO feels that the cash budget is not necessary, please explain to the CEO why cash budgeting is important to the organization.(4) Please explain the to the management team how a competitor’s actions can affect business planning.
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As a newly hired management accountant, you have been asked to prepare a profit plan for the company for which you work. As part of this task, you've been asked to do some what-if analyses. Following is the budgeted information regarding the coming year: Selling price per unit Variable cost per unit Fixed costs (per year) $ 100.00 70.00 1,200,000 Required: 1. What is the breakeven volume, in units and dollars, for the coming year? 2. Assume that the goal of the company is to earn a pretax (operating) profit of $300,000 for the coming year. How many units would the company have to sell to achieve this goal? 3. Assume that of the $70 variable cost per unit the labor-cost component is $25. Current negotiations with the employees of the company indicate some uncertainty regarding the labor cost component of the variable cost figure presented above. What is the effect on the breakeven point in units if selling price and fixed costs are as planned, but the labor cost for the coming year is…
The CEO of XYZ company has $1 million to spend to improve the company's operations. Although the money could be used to create another division, a new budget system is needed to track expenses and create responsibility budget reports. Even when the company earns profit, there are no reports to explain the reasons. Make a recommendation for the way the funds should be used. Defend your position.
As a newly hired management accountant, you have been asked to prepare a profit plan for the company for which you work. As part of this task, you've been asked to do some what-if analyses. Following is the budgeted Information regarding the coming year: Selling price per unit Variable cost per unit Fixed costs (per year) Required: $ 100.00 60.00 1,113,040 1. What is the breakeven volume, in units and dollars, for the coming year? 2. Assume that the goal of the company is to earn a pretax (operating) profit of $316,000 for the coming year. How many units would the company have to sell to achieve this goal? 3. Assume that of the $60 variable cost per unit the labor-cost component is $27. Current negotiations with the employees of the company indicate some uncertainty regarding the labor cost component of the variable cost figure presented above. What is the effect on the breakeven point in units if selling price and fixed costs are as planned, but the labor cost for the coming year is…
91) Toward the end of the fiscal year, the owner of a small company came back from lunch concerned because he had learned that a business targeted to the same customers as his was planning on spending $150,000 on promotion. As soon as he arrived at the office, he called his financial manager and said, "I want to budget $150,000 for next year's promotion." Which method of promotional budgeting did the owner want to use? A) the objective-task method B) the percentage-of-sales method C) the competitive-parity method D) the bottom-up method E) the pull-push method
The South Division of Wiig Company reported the following data for the current year. Sales Variable costs Controllable fixed costs Average operating assets $2,950,000 1,947,000 2. 595,000 Top management is unhappy with the investment center's return on investment (ROI). It asks the manager of the South Division to submit plans to improve ROI in the next year. The manager believes it is feasible to consider the following independent courses of action. 3. 5,000,000 1. Increase sales by $300,000 with no change in the contribution margin percentage. Reduce variable costs by $155,000. Reduce average operating assets by 4%. (a) Compute the return on investment (ROI) for the current year. (Round ROI to 2 decimal places, e.g. 1.57%)