Financial & Managerial Accounting
13th Edition
ISBN: 9781285866307
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Textbook Question
Chapter 19, Problem 19.3CP
Break-even analysis
Somerset Inc. has finished a new video game, Snowboard Challenge. Management is now considering its marketing strategies. The following information is available:
| Anticipated sales price per unit | $80 |
| Variable cost per unit’ | $35 |
| Anticipated volume | 1,000,000 units |
| Production costs | $20,000,000 |
| Anticipated advertising | $15,000,000 |
| *The cost of the video game, packaging, and copying costs. |
Two managers, James Hamilton and Thomas Seymour, had the following discussion of ways to increase the profitability of this new offering:
James: I think we need to think of some way to increase our profitability Do you have any ideas?
Thomas: Well, I think the best strategy would be to become aggressive on price.
James: How aggressive?
Thomas: If we drop the price to $60 per unit and maintain our advertising budget at $ 15,000,000, I think we will generate total sales of 2.000,000 units.
James: I think that’s the wrong way to go. You’re giving too much up on price. Instead, I think we need to follow an aggressive advertising strategy
Thomas: How aggressive?
James: If we increase our advertising to a total of $25,000,000, we should be able to increase sales volume to 1,400.000 units without any change in price.
Thomas: I don’t think that’s reasonable. We’ll never cover the increased advertising costs.
Which strategy is best: Do nothing? Follow the advice of Thomas Seymour? Or follow James Hamilton’s strategy?
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The text and question is below attactched as a photo: after reading the text the question is
"what strategy is best: do nothing? follow the advice of Dan Gillespie? or follow haley Chipana'a strategy?"
On-the-Go, Inc., produces two models of traveling cases for laptop computers—the Programmer and the Executive. The bags have the following characteristics.
Programmer
Executive
Selling price per bag
$
70
$
100
Variable cost per bag
$
30
$
40
Expected sales (bags) per year
8,000
12,000
The total fixed costs per year for the company are $819,000.
Required:
a. What is the anticipated level of profits for the expected sales volumes?
b. Assuming that the product mix is the same at the break-even point, compute the break-even point.
c. If the product sales mix were to change to nine Programmer-style bags for each Executive-style bag, what would be the new break-even volume for On-the-Go?
Star Company's manager, Tom, is thinking about production of a new product.
Tom is considering three different products. Tom would like to select a product
with highest profit. Following table contains the expected selling price and costs
for each product:
Selling price per unit
Cost:
Direct material coast per unit
Direct labor cost per unit
Variable overhead cost per unit
Total Fixed costs
A
$20.90
Annual Demand in units
300,000
450,000
600,000
750,000
$5
$6
$1.4
$500,000
Tom expects the same demand for all three products.
Products
B
$30
$8
$7
$2.5
$900,000
Probability
45%
30%
15%
10%
с
$28.50
Step 1: Identify a choice criterion.
Step 2: Identify the set of alternative actions that can be taken.
Step 3: Identify the set of events that can occur.
Step 4: Assign a probability to each event that can occur.
Step 5: Identify the set of possible outcomes.
Calculate the expected value for each option.
$4
$5.5
$9
$1,000,000
Require:
Review Chapter 3 Appendix in text book, the PP slides and…
Chapter 19 Solutions
Financial & Managerial Accounting
Ch. 19 - Describe how total variable costs and unit...Ch. 19 - Which of the following costs would be classified...Ch. 19 - Describe how total fixed costs and unit fixed...Ch. 19 - In applying the high-low method of cost estimation...Ch. 19 - If fixed costs increase, what would be the impact...Ch. 19 - Prob. 6DQCh. 19 - If the unit cost of direct materials is decreased,...Ch. 19 - Both Austin Company and Hill Company had the same...Ch. 19 - Prob. 9DQCh. 19 - Prob. 10DQ
Ch. 19 - High-low method The manufacturing costs of...Ch. 19 - Prob. 19.1BPECh. 19 - Prob. 19.2APECh. 19 - Prob. 19.2BPECh. 19 - Prob. 19.3APECh. 19 - Prob. 19.3BPECh. 19 - Prob. 19.4APECh. 19 - Prob. 19.4BPECh. 19 - Sales mix and break-even analysis Wide Open...Ch. 19 - Prob. 19.5BPECh. 19 - Operating leverage SungSam Enterprises reports the...Ch. 19 - Prob. 19.6BPECh. 19 - Prob. 19.7APECh. 19 - Prob. 19.7BPECh. 19 - Classify costs Following is a list of various...Ch. 19 - Identify cost graphs The following cost graphs...Ch. 19 - Prob. 19.3EXCh. 19 - Identify activity bases From the following list of...Ch. 19 - Identify fixed and variable costs Intuit Inc....Ch. 19 - Prob. 19.6EXCh. 19 - High-low method Diamond Inc. has decided to use...Ch. 19 - High-low method for a service company Boston...Ch. 19 - Contribution margin ratio a. Segar Company budgets...Ch. 19 - Contribution margin and contribution margin ratio...Ch. 19 - Prob. 19.11EXCh. 19 - Prob. 19.12EXCh. 19 - Prob. 19.13EXCh. 19 - Prob. 19.14EXCh. 19 - Prob. 19.15EXCh. 19 - Break even analysis for a service company Sprint...Ch. 19 - Prob. 19.17EXCh. 19 - Prob. 19.18EXCh. 19 - Prob. 19.19EXCh. 19 - Prob. 19.20EXCh. 19 - Prob. 19.21EXCh. 19 - Break-even sales and sales mix for a service...Ch. 19 - Margin of safety A. If Canace Company, with a...Ch. 19 - Prob. 19.24EXCh. 19 - Operating leverage Beck Inc. and Bryant Inc. have...Ch. 19 - Prob. 19.26EXCh. 19 - Variable costing income statement On July 31,...Ch. 19 - Absorption costing income statement On June 30,...Ch. 19 - Classify costs Seymour Clothing Co. manufactures a...Ch. 19 - Break-even sales under present and proposed...Ch. 19 - Prob. 19.3APRCh. 19 - Prob. 19.4APRCh. 19 - Prob. 19.5APRCh. 19 - Contribution margin, break-even sales,...Ch. 19 - Classify costs Cromwell Furniture Company...Ch. 19 - Prob. 19.2BPRCh. 19 - Break even sales and cost-volume-profit chart For...Ch. 19 - Prob. 19.4BPRCh. 19 - Sales mix and break even sales Data related to the...Ch. 19 - Prob. 19.6BPRCh. 19 - Prob. 19.1CPCh. 19 - Break-even analysis Somerset Inc. has finished a...Ch. 19 - Prob. 19.4CPCh. 19 - Prob. 19.5CP
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