The following monthly data are available for the Charger Company and its only product, Product AJ: Required: Sales (500 units) Variable expenses Contribution margin Fixed expenses Net income Total $137,500 55,000 $ 82,500 52,800 $ 29,700 Per Unit $275 110 $ 165 a) Without resorting to calculations, what is the total contribution margin at the break-even point? b) Management is contemplating the use of plastic gearing rather than metal gearing in Product SW. This change would reduce variable costs by $15. The company's marketing manager predicts that this would reduce the overall quality of the product and thus would result in a decline in sales to a level of 450 units per month. Should this change be made? c) Assume that Challenger Company is currently selling 500 units of Product SW per month. Management wants to increase sales and feels that this can be done by cutting the selling price by $25 per unit and increasing the advertising budget by $25,000 per month. Management believes that these actions will increase unit sales by 50%. Should these changes be made?

The following monthly data are available for the Charger Company and its only product, Product AJ: Required: Sales (500 units) Variable expenses Contribution margin Fixed expenses Net income Total $137,500 55,000 $ 82,500 52,800 $ 29,700 Per Unit $275 110 $ 165 a) Without resorting to calculations, what is the total contribution margin at the break-even point? b) Management is contemplating the use of plastic gearing rather than metal gearing in Product SW. This change would reduce variable costs by $15. The company's marketing manager predicts that this would reduce the overall quality of the product and thus would result in a decline in sales to a level of 450 units per month. Should this change be made? c) Assume that Challenger Company is currently selling 500 units of Product SW per month. Management wants to increase sales and feels that this can be done by cutting the selling price by $25 per unit and increasing the advertising budget by $25,000 per month. Management believes that these actions will increase unit sales by 50%. Should these changes be made?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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In the last reporting period, Harold's Hat Company recorded 100,000 units sold for the first time in the history of the company. The price per unit was $89.99 and variable costs per unit was $36.39. Compute the fixed costs if the operating income is $4,020,000. Do not use units in your final answer (i.e. $ or commas). Answer:
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Howard Cooper, the president of Walton Computer Services, needs your help. He wonders about the potential effects on the firm's net income if he changes the service rate that the firm charges its customers. The following basic data pertain to fiscal Year 1: Standard rate and variable costs Service rate per hour Labor cost Overhead cost Selling, general, and administrative cost Expected fixed costs. Facility maintenance Selling, general, and administrative $ 65.00 30.00 5.65 3.40 $ 316,000 120,000 Required: a. Prepare the pro forma income statement that would appear in the master budget if the firm expects to provide 29,000 hours of services in Year 1. b. A marketing consultant suggests to Mr. Cooper that the service rate may affect the number of service hours that the firm can achieve. According to the consultant's analysis, if Walton charges customers $60 per hour, the firm can achieve 34,000 hours of services. Prepare a flexible budget using the consultant's assumption. c. The same…