azamfatima
Oct 27, 2011, 07:54 AM
The Monteiro Manufacturing Corporation manufactures and sells folding umbrellas. The corporation's condensed income statement for the year ended 31 December 2008 follows:
Sales (200,000 units) $1,000,000
Costs of goods sold $600,000
Gross margin $400,000
Selling expenses $150,000
Administrative expenses $100,000 $250,000
Net profi t (before income taxes) $150,000
Monteiro's budget committee has estimated the following changes for 2009:
> 30% increase in number of units sold
> 20% increase in material cost per unit
> 15% increase in direct labour cost per unit
> 10% increase in variable indirect cost per unit
> 5% increase in indirect capacity-related costs
> 8% increase in selling expenses, arising solely from increased volume
> 6% increase in administrative expenses, reflecting anticipated higher wage and supply price levels.
Any changes in administrative expenses, caused solely by increased sales volume are considered immaterial. As inventory quantities remain fairly constant, the budget committee considered that for budget purposes any change in inventory valuation can be ignored. The composition of the cost of a unit of finished product during 2008 for materials, direct labour, and manufacturing support, respectively, was in the ratio of 3:2:1. In 2008, $40,000 of manufacturing support was for fixed costs. No changes in production methods or credit policies were contemplated for 2009.
Required
(a) Compute the unit sales price at which the Monteiro Manufacturing Corporation must sell its umbrellas in 2009 in order to earn a budgeted profit of $200,000.
(b) Unhappy about the prospect of an increase in selling price, Monteiro's sales manager wants to know how many units must be sold at the old price to earn the $200,000 budgeted profit. Compute the number of units which must be sold at the old price to earn $200,000.
(c) Believing that the estimated increase in sales is overly optimistic, one of the company's director wants to know what annual profit is likely if the selling price determined in (a) is adopted but the increase in sales volume is only 10%. Compute the budgeted profit in this case.
Sales (200,000 units) $1,000,000
Costs of goods sold $600,000
Gross margin $400,000
Selling expenses $150,000
Administrative expenses $100,000 $250,000
Net profi t (before income taxes) $150,000
Monteiro's budget committee has estimated the following changes for 2009:
> 30% increase in number of units sold
> 20% increase in material cost per unit
> 15% increase in direct labour cost per unit
> 10% increase in variable indirect cost per unit
> 5% increase in indirect capacity-related costs
> 8% increase in selling expenses, arising solely from increased volume
> 6% increase in administrative expenses, reflecting anticipated higher wage and supply price levels.
Any changes in administrative expenses, caused solely by increased sales volume are considered immaterial. As inventory quantities remain fairly constant, the budget committee considered that for budget purposes any change in inventory valuation can be ignored. The composition of the cost of a unit of finished product during 2008 for materials, direct labour, and manufacturing support, respectively, was in the ratio of 3:2:1. In 2008, $40,000 of manufacturing support was for fixed costs. No changes in production methods or credit policies were contemplated for 2009.
Required
(a) Compute the unit sales price at which the Monteiro Manufacturing Corporation must sell its umbrellas in 2009 in order to earn a budgeted profit of $200,000.
(b) Unhappy about the prospect of an increase in selling price, Monteiro's sales manager wants to know how many units must be sold at the old price to earn the $200,000 budgeted profit. Compute the number of units which must be sold at the old price to earn $200,000.
(c) Believing that the estimated increase in sales is overly optimistic, one of the company's director wants to know what annual profit is likely if the selling price determined in (a) is adopted but the increase in sales volume is only 10%. Compute the budgeted profit in this case.