1.
Calculate gross profit at regular sales price and discounted sales price.
2.
Calculate the additional number of units needed to sell this year to make the same gross profit as last year.
3.
Identify the fixed costs and variable costs relative to the sales revenue.
4.
Discuss the impact on operating income if the sales are decreased. Explain whether a cost structure that is largely fixed in nature can increase the company financial risk.
5.
Identify whether the advertising cost is fixed or variable. Explain how the increase in advertising cost affects the company’s operating income, if the company has a small margin of safety. Explain what would be effect in case of decrease in advertising costs.
Want to see the full answer?
Check out a sample textbook solutionChapter 20 Solutions
Horngren's Financial & Managerial Accounting, The Managerial Chapters (6th Edition)
- Kindmart is an international retail store. Kindmart’s managers are considering implementing a new business-to-business (B2B) information system for processing merchandise orders. The current system costs Kindmart $2,000,000 per month and $55 per order. Kindmart has two options, a partially automated B2B and a fully automated B2B system. The partially automated B2B system will have a fixed cost of $6,000,000 per month and a variable cost of $45 per order. The fully automated B2B system has a fixed cost of $14,000,000 per month and a variable cost of $25 per order. Based on data from the past two years, Kindmart has determined the following distribution on monthly orders: Monthly Number of Orders Probability 300,000 0.25 500,000 0.45 700,000 0.30 Q1. Prepare a table showing the cost of each plan for each quantity of monthly orders.arrow_forwardKindmart is an international retail store. Kindmart’s managers are considering implementing a new business-to-business (B2B) information system for processing merchandise orders. The current system costs Kindmart $2,000,000 per month and $55 per order. Kindmart has two options, a partially automated B2B and a fully automated B2B system. The partially automated B2B system will have a fixed cost of $6,000,000 per month and a variable cost of $45 per order. The fully automated B2B system has a fixed cost of $14,000,000 per month and a variable cost of $25 per order. Based on data from the past two years, Kindmart has determined the following distribution on monthly orders: Required: Prepare a table showing the cost of each plan for each quantity of monthly orders. What is the expected cost of each plan? In addition to the information system’s costs, what other factors should Kindmart consider before deciding to implement a new B2B system?arrow_forwardConsider the following hypothetical sales scenario. A large community college buys and takes delivery of 50 iMac computers from a local Apple store. The invoiced price is $2,800 per unit and includes hardware, software essential to the functionality of the hardware, third-party software including Microsoft Office for Mac and Adobe Creative Suite, and two years of tech service and support. Apple uses vendor-specific objective evidence to determine unit prices of $2,500 and $300 for hardware and the essential software, respectively. The third-party software typically retails for $500 (but Apple purchases it at a 50% discount) and equivalent service and support contracts are $100 per year. The customer (the community college) can opt to purchase subsequent essential software and OS upgrades. Indicate how Apple should record gross revenue for the transaction at the time the customer takes delivery of the computers. Your response should include specific dollar amounts.arrow_forward
- You have just begun your summer internship at Omni Instruments. The company supplies sterilized surgical instruments for physicians. To expand sales, Omni is considering paying a commission to its sales force. The controller, Matthew Barnhill, asks you to compute: (1) the new breakeven sales figure, and (2) the operating profit if sales increase 15% under the new sales commission plan. He thinks you can handle this task because you learned CVP analysis in your accounting class. You spend the next day collecting information from the accounting records, performing the analysis, and writing a memo to explain the results. The company president is pleased with your memo. You report that the new sales commission plan will lead to a significant increase in operating income and only a small increase in breakeven sales. The following week, you realize that you made an error in the CVP analysis. You overlooked the sales personnel’s $2,800 monthly salaries, and you did not include this fixed…arrow_forwardSamsung uses 600 touch-screen glasses a month to manufacture cell phones. Each touch screen-glass costs $ 30. The company pays $ 73,000 for the procurement clerk annually and has a budget of $ 18,250 a year for communication devices. The obsolescence cost is $ 24 a day, and the insurance costs $ 18 a day. In a year, how often should Samsung place the purchase order for touch-screen glass? What is Samsung’s total cost of inventory for touch-screen glass?arrow_forwardWawa, Inc., a startup footwear company, currently sells just one type of sneakers, Tribe. As Wawa's marketing vice- president in charge of its anniversary sales of its Tribe sneakers, you were given a marketing budget of $2.5 million for the upcoming sale for one 30-second direct-response internet ad. The ad provides the website address that will allow Wawa's to track when a hit has resulted from people seeing this particular ad. You get 1.7 million hits on that website. Is this good? How many Tribe sneakers did you eventually sell as a result? Did the ad pay for itself or not? Could you have done better by spending your money on some other form of advertising Let's say that of the 1.7 million visitors to your site, 0.005 percent ordered the Tribe sneakers by visiting your website. You, of course, created a special Web address just for this commercial, so you could accurately evaluate how many responses and orders this one ad produced. Let's also say that the price the Tribe sneakers…arrow_forward
- Crawford’s Books and Things has a traditional bookstore housed downtown Charlotte. The store has been there forty years, and many customers love the fact that they can hold the books in their hands and browse the offerings. Crawford’s just started an online book division for people who like to order books online. EVA for the Charlotte store is about $13 million, while EVA for the online division shows a value of –$2.2 million. Which measures for the customer and internal processes dimensions of the balanced scorecard would be appropriate for the online division? A. customer measure might be the percent of customers making repeat purchases; an internal process measure might be the number of times per month that the website is down. B. customer measure might be time to deliver books; an internal process measure might be the percentage of website visits that translate into sales. C. customer measure might be the number of new customers who come via recommendations from existing ones;…arrow_forwardSuppose that FedEx Kinko’s has decided to install personal computers and printers in its Pittsburgh store that will be rented to customers on an hourly basis. FedEx Kinko’s management has called in consultants from a number of computer suppliers to assist it in designing a system. After considering a number of alternatives, FedEx Kinko’s decided that an Apple computer system consisting of eight iMac computers and two printers best meets its current and projected future needs. FedEx Kinko’s evaluated the desirability of the acquisition of the Apple computer system using its normal capital budgeting procedures. It found that the computer system has a large positive expected net present value. Jim Horn, a new management trainee in the financial planning office, has recently been reading about the boom in the leasing industry. He feels that if leasing is growing as rapidly as it seems, there must be some significant advantages to the leasing alternative compared to ownership. If purchased,…arrow_forwardA store in a more popular location expects to sell 6 eyePhones every 15 minutes. How many eyePhones does this more popular store expect to sell in one hour? Answer:arrow_forward
- Premium Corporation believes that there is a market for a portable electronic toothbrush that can be easily carried by business travelers. Premium's market research department has surveyed the features and prices of electronic brushes currently on the market. Based on this research, Premium believes that $75 would be about the right price. At this price, marketing believes that about 78,000 new portable brushes can be sold over the product's life cycle. It will cost about $1,170,000 to design and develop the portable brush. Premium has a target profit of 25% of sales. Requirement 1. Determine the total and unit target cost to manufacture, sell, distribute, and service the portable brushes. Requirement 1. Determine the total and unit target cost to manufacture, sell, distribute, and service the portable brushes. Begin by computing the total target cost to manufacture, sell, distribute, and service the portable brushes, then compute the unit target cost to manufacture, sell, distribute,…arrow_forwardValencia Manufacturing Company manufactures and sells musical gadgets. You have just begun yoursummer internship at Valencia Manufacturing. To expand sales, the business is considering paying acommission to its sales team. You have been asked to compute 1) the new break-even sales figure, and 2) theoperating profit if sales increase by 10% under the new sales commission plan. She is confident that you canhandle the task, because you learned CVP analysis in your accounting class.The following data was obtained:Selling price per unit $200Variable expenses per unit: Direct Material $40Direct Labour $32Variable Manufacturing Overhead $18Fixed expenses: Fixed Manufacturing Overhead $190,000Fixed Selling Costs $115,000Fixed Administrative Costs $135,000Production/Sales 6,000 UnitsAfter collecting your data, you performed your analysis and submitted a memo to your manager, who was verypleased with the work done. Your report indicated that the new sales commission plan would result in…arrow_forwardHome Entertainment is a small, family-owned business that purchases LCD televisions from a reputable manufacturer and sells them at the retail level. The televisions sell, on average, for $2,060 each. The average cost of a television from the manufacturer is $1,330. Home Entertainment has always kept careful accounting records, and the costs that it incurs in a typical month are as follows: Costs Cost Formula Selling: Advertising $ 1,090 per month Delivery of televisions $ 50 per television sold Sales salaries and commissions $ 3,040 per month, plus 5% of sales Utilities $ 404 per month Depreciation of sales facilities $ 3,160 per month Administrative: Executive salaries $ 11,500 per month Depreciation of office equipment $ 805 per month Clerical $ 1,860 per month, plus $49 per television sold Insurance $ 720 per month During April, the company sold and delivered 219…arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education