The fixed costs of Anton, Inc. are $354,000 and the total variable costs for its only product are 45% of the sales price, which is $140. Anton currently sells 5,700 units per month and is looking to sell more. Consider each of the following independently: Part A The marketing manager thinks sales are too low in Georgia and suggests that sales there would be increased by 240 units per month if an additional $8,000 per month was spent advertising there. What should be the effect on monthly income if this additional advertising is done? (Increase by 10480, 7120, 447905, or 5645?) Part B Management is considering adding a new feature to its product that will cause an increase in variable costs of $9 per unit. It is expected that sales will increase by 710 units per month if this feature is added. If the feature is added, what should be the overall effect on the company's monthly income? (Decrease by 3020, 12,960, 3519, or increase by 48280?) Part C The marketing manager is considering lowering base salaries of salespeople by a collective amount of $44,000 per month while increasing the sales commission by $12 per unit. He believes this will increase monthly sales by 300 units. If so, what would the effect of this change in compensation have on monthly income? (Increase or Decrease) of $Answer?
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
The fixed costs of Anton, Inc. are $354,000 and the total variable costs for its only product are 45% of the sales price, which is $140. Anton currently sells 5,700 units per month and is looking to sell more. Consider each of the following independently:
Part A
The marketing manager thinks sales are too low in Georgia and suggests that sales there would be increased by 240 units per month if an additional $8,000 per month was spent advertising there. What should be the effect on monthly income if this additional advertising is done? (Increase by 10480, 7120, 447905, or 5645?)
Part B
Management is considering adding a new feature to its product that will cause an increase in variable costs of $9 per unit. It is expected that sales will increase by 710 units per month if this feature is added. If the feature is added, what should be the overall effect on the company's monthly income? (Decrease by 3020, 12,960, 3519, or increase by 48280?)
Part C
The marketing manager is considering lowering base salaries of salespeople by a collective amount of $44,000 per month while increasing the sales commission by $12 per unit. He believes this will increase monthly sales by 300 units. If so, what would the effect of this change in compensation have on monthly income? (Increase or Decrease) of $Answer?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
