You are the plant accountant for a company that makes a popular brand of basketball shoes. Currently, your company sells 1,000 pairs of shoes each month for $100 apiece. The variable costs are 40% of sales, and the fixed costs are $35,000/month. The company's advertising director is asking for an increase in her marketing budget of $1,500 per month. She plans to enhance her marketing campaign in a targeted area of the West Coast. She estimates that the additional advertising will result in a 50% increase in demand. For this situation, the additional advertising costs are considered a fixed cost. What is the impact of this request on the company's operating income? other hand, the production manager believes that this increase in sales could put pressure on the production the line. He estimates that there will need to be a $2.00 increase in labor costs per unit. Consider the following: • Using the projected monthly income figure calculated above, how many units would the company need to sell to meet the initial monthly income figure? • What is the break-even sales volume needed? • Summarize the results of your analysis. Respond to the following for this assignment: • How did you calculate the original operating income and break-even point before changes? • What is the new break-even point after including the effects of the increased advertising and higher variable costs? • Compare the two break-even results, and make a recommendation on whether the company should change or not.
You are the plant accountant for a company that makes a popular brand of basketball shoes. Currently, your company sells 1,000 pairs of shoes each month for $100 apiece. The variable costs are 40% of sales, and the fixed costs are $35,000/month. The company's advertising director is asking for an increase in her marketing budget of $1,500 per month. She plans to enhance her marketing campaign in a targeted area of the West Coast. She estimates that the additional advertising will result in a 50% increase in demand. For this situation, the additional advertising costs are considered a fixed cost. What is the impact of this request on the company's operating income? other hand, the production manager believes that this increase in sales could put pressure on the production the line. He estimates that there will need to be a $2.00 increase in labor costs per unit. Consider the following: • Using the projected monthly income figure calculated above, how many units would the company need to sell to meet the initial monthly income figure? • What is the break-even sales volume needed? • Summarize the results of your analysis. Respond to the following for this assignment: • How did you calculate the original operating income and break-even point before changes? • What is the new break-even point after including the effects of the increased advertising and higher variable costs? • Compare the two break-even results, and make a recommendation on whether the company should change or not.
Chapter3: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 10EB: Keleher Industries manufactures pet doors and sells them directly to the consumer via their web...
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Transcribed Image Text:You are the plant accountant for a company that makes
a popular brand of basketball shoes. Currently, your
company sells 1,000 pairs of shoes each month for $100
apiece. The variable costs are 40% of sales, and the
fixed costs are $35,000/month. The company's
advertising director is asking for an increase in her
marketing budget of $1,500 per month. She plans to
enhance her marketing campaign in a targeted area of
the West Coast. She estimates that the additional
advertising will result in a 50% increase in demand. For
this situation, the additional advertising costs are
considered a fixed cost. What is the impact of this
request on the company's operating income? On the
other hand, the production manager believes that this
increase in sales could put pressure on the production
line. He estimates that there will need to be a $2.00
increase in labor costs per unit.
Consider the following:
• Using the projected monthly income figure
calculated above, how many units would the
company need to sell to meet the initial monthly
income figure?
• What is the break-even sales volume needed?
• Summarize the results of your analysis.
Respond to the following for this assignment:
• How did you calculate the original operating
income and break-even point before changes?
• What is the new break-even point after including
the effects of the increased advertising and
higher variable costs?
• Compare the two break-even results, and make a
recommendation on whether the company
should change or not.
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