Valencia Manufacturing Company manufactures and sels musical gadgets. You have just begun your summer intermship at Valencia Manufacturing. To expand sales, the business is considering paying a commission to its sales team. You have been asked to compute 1) the new break-even sales figure, and 2) the operating profit if sales increase by 10% under the new sales commission plan. She is confident that you can handle the task, because you learned CVP analysis in your accounting class. The following data was obtained: Selling price per unit Variable expenses per unit: $200 $40 $32 $18 Direct Material Direct Labour Variable Manufacturing Overhead Fixed expenses: Fixed Manufacturing Overhead Fixed Selling Costs Fixed Administrative Costs $190,000 $115,000 $135,000 6,000 Units Production/Sales After collecting your data, you performed your analysis and submitted a memo to your manager, who was very pleased with the work done. Your report indicated that the new sales commission plan would result in a significant increase in operating income but only a small increase in break-even sales. A few days after, you realized that you made an error in the CVP analysis, as the sales personnel's $88,000 salaries were inadvertently left out and you therefore did not include this fixed marketing cost in your computations. You are not sure what to do, as you are afraid that Valencia might not offer you permanent employment after the internship. How would your error affect breakeven sales and operating income under the proposed sales commission plan? After considering all factors, should you inform your manager or simply keep quiet?
Valencia Manufacturing Company manufactures and sels musical gadgets. You have just begun your summer intermship at Valencia Manufacturing. To expand sales, the business is considering paying a commission to its sales team. You have been asked to compute 1) the new break-even sales figure, and 2) the operating profit if sales increase by 10% under the new sales commission plan. She is confident that you can handle the task, because you learned CVP analysis in your accounting class. The following data was obtained: Selling price per unit Variable expenses per unit: $200 $40 $32 $18 Direct Material Direct Labour Variable Manufacturing Overhead Fixed expenses: Fixed Manufacturing Overhead Fixed Selling Costs Fixed Administrative Costs $190,000 $115,000 $135,000 6,000 Units Production/Sales After collecting your data, you performed your analysis and submitted a memo to your manager, who was very pleased with the work done. Your report indicated that the new sales commission plan would result in a significant increase in operating income but only a small increase in break-even sales. A few days after, you realized that you made an error in the CVP analysis, as the sales personnel's $88,000 salaries were inadvertently left out and you therefore did not include this fixed marketing cost in your computations. You are not sure what to do, as you are afraid that Valencia might not offer you permanent employment after the internship. How would your error affect breakeven sales and operating income under the proposed sales commission plan? After considering all factors, should you inform your manager or simply keep quiet?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Valencia Manufacturing Company manufactures and sels musical gadgets. You have just
begun your summer intermship at Valencia Manufacturing. To expand sales, the business is
considering paying a commission to its sales team. You have been asked to compute 1) the
new break-even sales figure, and 2) the operating profit if sales increase by 10% under the
new sales commission plan. She is confident that you can handle the task, because you
learned CVP analysis in your accounting class.
The following data was obtained:
Selling price per unit
Variable expenses per unit:
$200
$40
$32
$18
Direct Material
Direct Labour
Variable Manufacturing Overhead
Fixed expenses:
Fixed Manufacturing Overhead
Fixed Selling Costs
Fixed Administrative Costs
$190,000
$115,000
$135,000
6,000 Units
Production/Sales
After collecting your data, you performed your analysis and submitted a memo to your
manager, who was very pleased with the work done. Your report indicated that the new sales
commission plan would result in a significant increase in operating income but only a small
increase in break-even sales.
A few days after, you realized that you made an error in the CVP analysis, as the sales
personnel's $88,000 salaries were inadvertently left out and you therefore did not include this
fixed marketing cost in your computations. You are not sure what to do, as you are afraid that
Valencia might not offer you permanent employment after the internship.
How would your error affect breakeven sales and operating income under the proposed sales
commission plan? After considering all factors, should you inform your manager or simply
keep quiet?
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