The following are estimates relating to its 2019 budget: Selling Price- Variable cost per wheelbarrow Fixed annual cost- $150000 Nett Profit (After tax) Income tax rate -S1000 -S500 S300000 -25% The mid-year review of the income statement revealed that sales were not at the expected level. For the six months of the year to June 2019, 350 units were sold at the estimated selling price with variable cost as planned. However, the net profit projection for 2019 would not be achieved unless management decisions are made. The following mutually exclusive altematives were presented to management: a) The selling price should be reduced by S100. This reduction in selling price will allow 1000 units to be sold for the balance of the year. The budgeted fixed cost and variable cost per unit will remain unchanged. b) The variable cost per unit will be reduced by $25 by sourcing less expensive direct material. Also, the selling price will be reduced by S150 and the expected sales for the balance of the year is 1200 units. c) The fixed cost would be reduced byS15000 and the selling price by 5%. Variable cost will remain unchanged and 1100 units are expected to be sold for the balance of the year. Required: I) Assume that no changes are made to the selling price or costs, calculate the amount of units that Caribo must sell: i) To breakeven i) To attain the estimated net profit 2) Detemine the altemative that Caribo should select to achieve its Net profit goal.
The following are estimates relating to its 2019 budget: Selling Price- Variable cost per wheelbarrow Fixed annual cost- $150000 Nett Profit (After tax) Income tax rate -S1000 -S500 S300000 -25% The mid-year review of the income statement revealed that sales were not at the expected level. For the six months of the year to June 2019, 350 units were sold at the estimated selling price with variable cost as planned. However, the net profit projection for 2019 would not be achieved unless management decisions are made. The following mutually exclusive altematives were presented to management: a) The selling price should be reduced by S100. This reduction in selling price will allow 1000 units to be sold for the balance of the year. The budgeted fixed cost and variable cost per unit will remain unchanged. b) The variable cost per unit will be reduced by $25 by sourcing less expensive direct material. Also, the selling price will be reduced by S150 and the expected sales for the balance of the year is 1200 units. c) The fixed cost would be reduced byS15000 and the selling price by 5%. Variable cost will remain unchanged and 1100 units are expected to be sold for the balance of the year. Required: I) Assume that no changes are made to the selling price or costs, calculate the amount of units that Caribo must sell: i) To breakeven i) To attain the estimated net profit 2) Detemine the altemative that Caribo should select to achieve its Net profit goal.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Question
Transcribed Image Text:Caribo produces and markets wheelbarrows for the Caribbean market.
The following are estimates relating to its 2019 budget:
Selling Price-
--S1000
Variable cost per wheelbarrow-
-S500
Fixed annual cost-
Nett Profit (After tax)-
--$150000
-$300000
Income tax rate
-25%
The mid-year review of the income statement revealed that sales were not at the expected level.
For the six months of the year to June 2019, 350 units were sold at the estimated selling price
with variable cost as planned. However, the net profit projection for 2019 would not be
achieved unless management decisions are made. The following mutually exclusive
altematives were presented to management:
a) The selling price should be reduced by $100. This reduction in selling price will allow
1000 units to be sold for the balance of the year. The budgeted fixed cost and variable
cost per unit will remain unchanged.
b) The variable cost per unit will be reduced by $25 by sourcing less expensive direct
material. Also, the selling price will be reduced by $150 and the expected sales for the
balance of the year is 1200 units.
c) The fixed cost would be reduced byS15000 and the selling price by 5%. Variable cost
will remain unchanged and 1100 units are expected to be sold for the balance of the
year.
Required:
1) Assume that no changes are made to the selling price or costs, calculate the amount of units
that Caribo must sell:
i) To breakeven
ii) To attain the estimated net profit
2) Detemmine the altemative that Caribo should select to achieve its Net profit goal.
3) Explain sensitivity analysis/cost-volume-profit analysis using the data in this question?
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