Varsity's Steel Parts produces parts for the automobile industry. The company has monthly fixed expenses of $510.000 and a contribution margin of 85% of revenues. Varsity feels Klike he is in a giant squeeze play. The automotive manufacturers are demanding lower prices, and the steel producers have increased raw material costs Varsity's contribution marginhas shrunk to 70% of revenues Varsity's monthly operating income, prior to these pressures, was $391,000 Requirements 1. To maintain this same level of profit, what sales volume (in sales revenue) must Varsity now achieve? 2. Varsity believes that his monthly sales revenue will go only as high as $1.160.000 He is thinking about moving operations overseas to cut fixed costs. If monthly sales are $1,150,000, by how much will he need to cut fixed costs to maintain hio prior profit level of $391,000 per month? Requirement 1. To maintain this same level of profit what sales volume (in sales revenue) must Varsity now achieve? Select the labels to complete the formula to compute the target sales revenue in dollars using the contribution margin approach. Then enter the amounts to calculate the new target sales in dollar Varsity must now achieve. (Enter ratios as decimals, Round your answer up to the nearest whole dollar) Operating income Current fixed expenses Contribution margin ratio 510,000 0.70 Sales in dollars 1.287,143 391,000 $ Requirement 2. If monthly sales are $1,160 000, by how much will he need to cut fixed costs to maintain his prior profit level of $391,000 per month? Fixed expenses can only be $1.207.143 in order to maintain the prior profit level of $391.000 per month Therefore, Varsity will have to save at least 51.287,143 per month in fixed costs by moving operations overseas if he plans to maintain his prior profit level
Varsity's Steel Parts produces parts for the automobile industry. The company has monthly fixed expenses of $510.000 and a contribution margin of 85% of revenues. Varsity feels Klike he is in a giant squeeze play. The automotive manufacturers are demanding lower prices, and the steel producers have increased raw material costs Varsity's contribution marginhas shrunk to 70% of revenues Varsity's monthly operating income, prior to these pressures, was $391,000 Requirements 1. To maintain this same level of profit, what sales volume (in sales revenue) must Varsity now achieve? 2. Varsity believes that his monthly sales revenue will go only as high as $1.160.000 He is thinking about moving operations overseas to cut fixed costs. If monthly sales are $1,150,000, by how much will he need to cut fixed costs to maintain hio prior profit level of $391,000 per month? Requirement 1. To maintain this same level of profit what sales volume (in sales revenue) must Varsity now achieve? Select the labels to complete the formula to compute the target sales revenue in dollars using the contribution margin approach. Then enter the amounts to calculate the new target sales in dollar Varsity must now achieve. (Enter ratios as decimals, Round your answer up to the nearest whole dollar) Operating income Current fixed expenses Contribution margin ratio 510,000 0.70 Sales in dollars 1.287,143 391,000 $ Requirement 2. If monthly sales are $1,160 000, by how much will he need to cut fixed costs to maintain his prior profit level of $391,000 per month? Fixed expenses can only be $1.207.143 in order to maintain the prior profit level of $391.000 per month Therefore, Varsity will have to save at least 51.287,143 per month in fixed costs by moving operations overseas if he plans to maintain his prior profit level
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Varsity's Steel Parts produces parts for the automobile industry. The company has monthly fixed expenses of $510.000 and a contribution margin of 85% of revenues. Varsity feels
Klike he is in a giant squeeze play. The automotive manufacturers are demanding lower prices, and the steel producers have increased raw material costs Varsity's contribution
margin has shrunk to 70% of revenues Varsity's monthly operating income, prior to these pressures, was $391,000
Requirements
1. To maintain this same level of profit, what sales volume (in sales revenue) must Varsity now achieve?
2. Varsity believes that his monthly sales revenue will go only as high as $1.160.000 He is thinking about moving operations overseas to cut fixed costs. If monthly sales are
$1,150,000, by how much will he need to cut fixed costs to maintain his prior profe level of $391,000 per month?
Requirement 1. To maintain this same level of profit what sales volume (in sales revenue) must Varsity now achieve?
Select the labels to complete the formula to compute the target sales revenue in dollars using the contribution margin approach. Then enter the amounts to calculate the new target
sales in dollar Varsity must now achieve (Enter ratios as decimals, Round your answer up to the nearest whole dollar)
Operating income
Current fixed expenses
510,000
Contribution margin ratio
391,000
0.70
Requirement 2. If monthly sales are $1,160 000, by how much will he need to cut fixed costs to maintain his prior profit level of $391,000 per month?
Fixed expenses can only be $1.287,143 in order to maintain the prior proft level of $391,000 per month Therefore, Varsity will have to save at least 51.287,143 per month in fixed
costs by moving operations overseas if he plans to maintain his prior profit level
Sales in dollars
1.287,143
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