The project requires the comparison of two competing proposals. Only one will be selected. The details of the proposals are as follows:
1. The Production Manager wants to invest $250,000 into new manufacturing equipment that will improve the efficiency and quality of the production process. The production manager has been pushing for this investment for months and has stated that the variable manufacturing cost of the product will decrease by $10 per unit. The investment will cause an increase in the fixed manufacturing costs in the form of annual depreciation expense of $50,000 on the new equipment.
The accounting numbers are as follows:
i. Decrease in Variable cost of $10 per unit
ii. Increase to annual Fixed cost of $50,000
2. The Sales Manager wants to implement a 3 year marketing campaign at a total cost of $150,000 ($50,000 annually for 3 years) and to decrease the selling price of the product by $13 dollars. He guarantees this will increase sales units by 25%.
The accounting numbers are as follows:
i. Decrease in Selling price per unit of $13
ii. Increase in annual marketing expense (fixed cost) of $50,000
iii. Increase in sales units by 25% (at the new lower per unit selling price)
You will need to complete a Contribution Margin Report based on the current revenue and expenses and also one for each of the proposals. In addition to the Contribution Margin Report you will also need to include the following calculations for the current and for each of the proposals: The Breakeven point in sales units and dollars, the margin of safety in dollars and percentage. For the analysis of the two proposals ignore the net present value of cash flows.
After you have completed your analysis you will need to make your recommendation on the course of action that will be the most advantageous to the company. Be complete in your analysis and prepare a memo to your boss Sally outlining your findings and provide support for your recommendation. [Be sure to include âallâ of the information that the data is providing.]
Student Name:
Manning Enterprises
Set up a Contribution Margin Statement for Product A to use for your analysis
You gathered the following per unit information from the Company's accounting system for Product A:
Unit Sales 5,344
Sales Price per Unit $225.00
Variable Cost per unit $137.00
Total Traceable Fixed Cost $357,245.00
Using the above data prepare a current contribution margin report and a Forecasted contribution margin report (one for each of the proposals reflecting each of their proposed changes). You use a template that you kept from when you took Managerial Accounting . You saved all of the templates you used in Managerial Accounting because you knew someday you would need them!
Production Propsal
Current Per Unit % of Sales Current Proposed per Unit % of Sales Forecasted based on Proposal Difference
Units Sold
Sales
Variable Cost
Contribution Margin
Traceable Fixed Cost
Profit (Loss)
Sales Proposal
Current Per Unit % of Sales Current Proposed per Unit % of Sales Forecasted based on Proposal Difference
Units Sold
Sales
Variable Cost
Contribution Margin
Traceable Fixed Cost
Profit (Loss)
Current
Breakeven in Sales Units ______
Breakeven in Sales Dollars ______
Margin of Safety in sales dollars _____
Margin of Safety %
Production Propsal
Breakeven in Sales Units _______
Breakeven in Sales Dollars _____
Margin of Safety in sales dollars ______
Margin of Safety %
Sales Proposal
Breakeven in Sales Units ______
Breakeven in Sales Dollars _____
Margin of Safety in sales dollars ______
Margin of Safety % ______
The project requires the comparison of two competing proposals. Only one will be selected. The details of the proposals are as follows:
1. The Production Manager wants to invest $250,000 into new manufacturing equipment that will improve the efficiency and quality of the production process. The production manager has been pushing for this investment for months and has stated that the variable manufacturing cost of the product will decrease by $10 per unit. The investment will cause an increase in the fixed manufacturing costs in the form of annual depreciation expense of $50,000 on the new equipment.
The accounting numbers are as follows:
i. Decrease in Variable cost of $10 per unit
ii. Increase to annual Fixed cost of $50,000
2. The Sales Manager wants to implement a 3 year marketing campaign at a total cost of $150,000 ($50,000 annually for 3 years) and to decrease the selling price of the product by $13 dollars. He guarantees this will increase sales units by 25%.
The accounting numbers are as follows:
i. Decrease in Selling price per unit of $13
ii. Increase in annual marketing expense (fixed cost) of $50,000
iii. Increase in sales units by 25% (at the new lower per unit selling price)
You will need to complete a Contribution Margin Report based on the current revenue and expenses and also one for each of the proposals. In addition to the Contribution Margin Report you will also need to include the following calculations for the current and for each of the proposals: The Breakeven point in sales units and dollars, the margin of safety in dollars and percentage. For the analysis of the two proposals ignore the net present value of cash flows.
After you have completed your analysis you will need to make your recommendation on the course of action that will be the most advantageous to the company. Be complete in your analysis and prepare a memo to your boss Sally outlining your findings and provide support for your recommendation. [Be sure to include âallâ of the information that the data is providing.]
Student Name:
Manning Enterprises
Set up a Contribution Margin Statement for Product A to use for your analysis
You gathered the following per unit information from the Company's accounting system for Product A:
Unit Sales 5,344
Sales Price per Unit $225.00
Variable Cost per unit $137.00
Total Traceable Fixed Cost $357,245.00
Using the above data prepare a current contribution margin report and a Forecasted contribution margin report (one for each of the proposals reflecting each of their proposed changes). You use a template that you kept from when you took Managerial Accounting . You saved all of the templates you used in Managerial Accounting because you knew someday you would need them!
Production Propsal
Current Per Unit % of Sales Current Proposed per Unit % of Sales Forecasted based on Proposal Difference
Units Sold
Sales
Variable Cost
Contribution Margin
Traceable Fixed Cost
Profit (Loss)
Sales Proposal
Current Per Unit % of Sales Current Proposed per Unit % of Sales Forecasted based on Proposal Difference
Units Sold
Sales
Variable Cost
Contribution Margin
Traceable Fixed Cost
Profit (Loss)
Current
Breakeven in Sales Units ______
Breakeven in Sales Dollars ______
Margin of Safety in sales dollars _____
Margin of Safety %
Production Propsal
Breakeven in Sales Units _______
Breakeven in Sales Dollars _____
Margin of Safety in sales dollars ______
Margin of Safety %
Sales Proposal
Breakeven in Sales Units ______
Breakeven in Sales Dollars _____
Margin of Safety in sales dollars ______
Margin of Safety % ______
Related questions
Differential Analysis Report for Sales Promotion Proposal
Rocket Shoe Company is planning a one-month campaign for August to promote sales of one of its two shoe products. A total of $50,000 has been budgeted for advertising, contests, redeemable coupons, and other promotional activities. The following data have been assembled for their possible usefulness in deciding which of the products to select for the campaign.
| Cross-Trainer Shoe | Running Shoe | |||
| Unit selling price | $41 | $45 | ||
| Unit production costs: | ||||
| Direct materials | $ (8) | $(10) | ||
| Direct labor | (3) | (3) | ||
| Variable factory overhead | (2) | (3) | ||
| Fixed factory overhead | (3) | (4) | ||
| Total unit production costs | $(16) | $(20) | ||
| Unit variable selling expenses | (13) | (12) | ||
| Unit fixed selling expenses | (8) | (4) | ||
| Total unit costs | $(37) | $(36) | ||
| Operating income per unit | $ 4 | $ 9 | ||
No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 18,000 additional units of cross-trainer shoes or 15,000 additional units of running shoes could be sold without changing the unit selling price of either product.
Required:
1. Prepare a differential analysis report presenting the additional revenue and additional costs anticipated from the promotion of cross-trainer shoes and running shoes.
| Rocket Shoe Company | |||||||||||
| Proposals for Sales Promotion Campaign | |||||||||||
| Differential Analysis Report
| |||||||||||
5. Snyder, Inc., which has excess capacity,received a special order for 4,200 units at a price of $17 perunit. Currently, production and sales are anticipated to be 12,000units without considering the special order. Budget information forthe current year follows. Sales $ 240,000 Less: Cost of goods sold 186,000 Grossmargin $ 54,000 Cost of goods sold includes $30,000 offixed manufacturing cost. If the special order is accepted, thecompany's income will:
increase by $6,300.
decrease by $6,300.
increase by $16,800.
decrease by $16,800.
None of these.
7.Song, a division of Carolina Enterprises,currently makes 160,000 units of a product that has created anumber of manufacturing problems. Song's costs follow.
| Manufacturing costs: | |
| Variable | $ 630,000 |
| Fixed | 183,000 |
| Allocated corporate administrative cost | 64,000 |
If Song were to discontinue production, fixed manufacturing costswould be reduced by 70%. The relevant cost of deciding whether thedivision should purchase the product from an outside supplieris:
$813,000.
$822,100.
$630,000.
$758,100.
$684,900.
Cane Company manufactures two products called Alpha and Betathat sell for $120 and $80, respectively. Each product uses onlyone type of raw material that costs $6 per pound. The company hasthe capacity to annually produce 100,000 units of each product. Itsunit costs for each product at this level of activity are givenbelow: |
Alpha | Beta | |||||||
Direct materials | $ | 30 | $ | 12 | ||||
Direct labor | 20 | 15 | ||||||
Variable manufacturing overhead | 7 | 5 | ||||||
Traceable fixed manufacturing overhead | 16 | 18 | ||||||
Variable selling expenses | 12 | 8 | ||||||
Common fixed expenses | 15 | 10 | ||||||
Total cost per unit | $ | 100 | $ | 68 | ||||
The company considers its traceable fixed manufacturing overheadto be avoidable, whereas its common fixed expenses are deemedunavoidable and have been allocated to products based on salesdollars. |
7. Assume that Cane normally produces and sells 40,000 Betas peryear. If Cane discontinues the Beta product line, how much willprofits increase or decrease? |
8. Assume that Cane normally produces and sells 60,000 Betas and80,000 Alphas per year. If Cane discontinues the Beta product line,its sales representatives could increase sales of Alpha by 15,000units. If Cane discontinues the Beta product line, how much wouldprofits increase or decrease?
10. | Assume that Cane expects to produce and sell 50,000 Alphasduring the current year. A supplier has offered to manufacture anddeliver 50,000 Alphas to Cane for a price of $80 per unit. If Canebuys 50,000 units from the supplier instead of making those units,how much will profits increase or decrease? |
