ACCT-2020 Lecture Notes - Lecture 4: Earnings Before Interest And Taxes, Operating Leverage
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Folgers manufactures coffee:
Item | Total Cost |
Salaries for Administrative Staff | $264,000 |
Salary for Factory Manager | 14,800 |
Rent on Factory and Equipment | 184,600 |
Utilities for Factory | 40,200 |
Advertising (fixed) | 20,400 |
Rubber and plastic | 448,200 |
Wages for Assembly Staff | 358,000 |
Total | $1,330,200 |
a. Identify all costs above as either a product cost(specifically DM, DL or OH) or a period cost (PC).
b. If Folgers had produced 12,000 units, but only sold ¾ of itsinventory what amount would it report for inventory?
c. Identify all of their costs as either a variable cost (VC) ora fixed cost (FC) then calculate the variable cost per unit(rounded to the nearest penny) assuming 12,000 units were producedand the total fixed costs. Prepare a CM model assuming all unitswere sold at $125each.
Use the contribution margin model toanswer each situation below, which is independent of the others andunless specified otherwise, uses the VC and FC data above.
d. Management expects a 20% increase in unit sales. If so, whatis the Folgersâ projected net income under this scenario?
e. Folgers is considering using recycled rubber and plastic fortheir product. If so, its most recent costs for materials wouldincrease by $10 per unit; as a result, Folgers would increase theprice by $5 per unit to help offset that cost increase. Inaddition, management would increase advertising by 50 percent. Ifthose changes are made,Folgers anticipates that unit sales wouldincrease by 15 percent. What is the projected net income under thisscenario?
f.Folgers is considering whether it should make upgrades to thefactory and equipment; if so, the rent on factory and equipmentwould increase by 15 percent. Management projects that itsproduction (and sales) volume would increase by 20 percent if theprice were lowered by $5 per unit for all units. What is theprojected net income under this scenario?