A small manufacturing company in Toronto, Ontario, manufacturesthree types of pumps used in a variety of applications. For manyyears the company has been profitable and has operated at capacity.However, in the last two years prices on all pumps were reduced andselling expenses increased to meet competition and keep the plantoperating at capacity. Second-quarter results for the current year,which follow, typify recent experience.
ONTARIO PUMP COMPANY Income Statement Second Quarter (in thousands) R-Pump F-Pump S-Pump Total Sales $ 6,956 $ 4,674 $ 4,352 $ 15,982 Cost of goodssold 4,556 4,000 4,593 13,149 Gross margin $ 2,400 $ 674 $ (241 ) $ 2,833 Selling andadministrative expenses 1,609 961 653 3,223 Income beforetaxes $ 791 $ (287 ) $ (894 ) $ (390 )
Maria Carlo, the company'spresident, is concerned about the results of the pricing, selling,and production prices. After reviewing the second-quarter resultsshe asked her management staff to consider the following threesuggestions:
⢠Discontinue the S-Pump line immediately. S-Pumps would not bereturned to the product line unless the problems with the pump canbe identified and resolved.
⢠Increase quarterly sales promotion by $440,000 on the R-Pumpproduct line in order to increase sales volume by 15 percent.
⢠Cut production on the F-Pump line by 50 percent, and cut thetraceable advertising and promotion for this line to $130,000 eachquarter.
Justin Sperry, the controller,suggested a more careful study of the financial relationships todetermine the possible effects on the companyâs operating resultsof the presidentâs proposed course of action. The president agreedand assigned JoAnn Brower, the assistant controller, to prepare ananalysis. Brower has gathered the following information.
⢠The unit sales prices for thethree pumps are as follows:
R-Pump $ 740 F-Pump 410 S-Pump 680
⢠The company is manufacturing atcapacity and is selling all the pumps it produces.
⢠All three pumps are manufacturedwith common equipment and facilities. ⢠The selling and administrative expense is allocated to the threepump lines based on average sales volume over the past threeyears.
⢠Special selling expenses (primarily advertising, promotion, andshipping) are incurred for each pump as follows:
Quarterly Advertising
and Promotion Shipping Expenses R-Pump $ 770,000 $ 44 per unit F-Pump 440,000 26 per unit S-Pump 260,000 100 per unit
⢠The unit manufacturing costs forthe three pumps are as follows:
R-Pump F-Pump S-Pump Direct material $ 107.00 $ 65.00 $ 164.00 Direct labor 148.00 88.00 208.00 Variablemanufacturing overhead 163.00 118.00 208.00 Fixed manufacturingoverhead 66.68 79.88 137.66 Total $ 484.68 $ 350.88 $ 717.66
1. Use the operatingdata presented for Ontario Pump Company and assume that thepresident's proposed course of action had been implemented at thebeginning of the second quarter. SHOW ALL WORK.
a. Calculate the net impact on income before taxes foreach of the three suggestions. Fill in the chartbelow.
F PUMP R PUMP S PUMP INCREASE (DECREASE) IN SEGMENTCONTRIBUTION
b. calculate the contribution margin for S pump.
c. calculate the contribution per direct-labor dollar for r pumpand f pump.
A small manufacturing company in Toronto, Ontario, manufacturesthree types of pumps used in a variety of applications. For manyyears the company has been profitable and has operated at capacity.However, in the last two years prices on all pumps were reduced andselling expenses increased to meet competition and keep the plantoperating at capacity. Second-quarter results for the current year,which follow, typify recent experience. |
| ONTARIO PUMP COMPANY | ||||||||||||
| Income Statement | ||||||||||||
| Second Quarter | ||||||||||||
| (in thousands) | ||||||||||||
| R-Pump | F-Pump | S-Pump | Total | |||||||||
| Sales | $ | 6,956 | $ | 4,674 | $ | 4,352 | $ | 15,982 | ||||
| Cost of goodssold | 4,556 | 4,000 | 4,593 | 13,149 | ||||||||
| Gross margin | $ | 2,400 | $ | 674 | $ | (241 | ) | $ | 2,833 | |||
| Selling andadministrative expenses | 1,609 | 961 | 653 | 3,223 | ||||||||
| Income beforetaxes | $ | 791 | $ | (287 | ) | $ | (894 | ) | $ | (390 | ) | |
Maria Carlo, the company'spresident, is concerned about the results of the pricing, selling,and production prices. After reviewing the second-quarter resultsshe asked her management staff to consider the following threesuggestions: |
| ⢠| Discontinue the S-Pump line immediately. S-Pumps would not bereturned to the product line unless the problems with the pump canbe identified and resolved. |
| ⢠| Increase quarterly sales promotion by $440,000 on the R-Pumpproduct line in order to increase sales volume by 15 percent. |
| ⢠| Cut production on the F-Pump line by 50 percent, and cut thetraceable advertising and promotion for this line to $130,000 eachquarter. |
Justin Sperry, the controller,suggested a more careful study of the financial relationships todetermine the possible effects on the companyâs operating resultsof the presidentâs proposed course of action. The president agreedand assigned JoAnn Brower, the assistant controller, to prepare ananalysis. Brower has gathered the following information. |
| ⢠| The unit sales prices for thethree pumps are as follows: |
| R-Pump | $ | 740 | |
| F-Pump | 410 | ||
| S-Pump | 680 | ||
| ⢠| The company is manufacturing atcapacity and is selling all the pumps it produces. |
| ⢠| All three pumps are manufacturedwith common equipment and facilities. |
| ⢠| The selling and administrative expense is allocated to the threepump lines based on average sales volume over the past threeyears. |
| ⢠| Special selling expenses (primarily advertising, promotion, andshipping) are incurred for each pump as follows: |
| Quarterly Advertising and Promotion | Shipping Expenses | |||||
| R-Pump | $ | 770,000 | $ | 44 | per unit | |
| F-Pump | 440,000 | 26 | per unit | |||
| S-Pump | 260,000 | 100 | per unit | |||
| ⢠| The unit manufacturing costs forthe three pumps are as follows: |
| R-Pump | F-Pump | S-Pump | |||||||
| Direct material | $ | 107.00 | $ | 65.00 | $ | 164.00 | |||
| Direct labor | 148.00 | 88.00 | 208.00 | ||||||
| Variablemanufacturing overhead | 163.00 | 118.00 | 208.00 | ||||||
| Fixed manufacturingoverhead | 66.68 | 79.88 | 137.66 | ||||||
| Total | $ | 484.68 | $ | 350.88 | $ | 717.66 | |||
| 1. Use the operatingdata presented for Ontario Pump Company and assume that thepresident's proposed course of action had been implemented at thebeginning of the second quarter. SHOW ALL WORK. |
| a. Calculate the net impact on income before taxes foreach of the three suggestions. Fill in the chartbelow.
b. calculate the contribution margin for S pump. c. calculate the contribution per direct-labor dollar for r pumpand f pump. |
Related questions
A small manufacturing company in Toronto, Ontario, manufacturesthree types of pumps used in a variety of applications. For manyyears the company has been profitable and has operated at capacity.However, in the last two years prices on all pumps were reduced andselling expenses increased to meet competition and keep the plantoperating at capacity. Second-quarter results for the current year,which follow, typify recent experience. |
| ONTARIO PUMP COMPANY | ||||||||||||
| Income Statement | ||||||||||||
| Second Quarter | ||||||||||||
| (in thousands) | ||||||||||||
| R-Pump | F-Pump | S-Pump | Total | |||||||||
| Sales | $ | 6,956 | $ | 4,674 | $ | 4,352 | $ | 15,982 | ||||
| Cost of goodssold | 4,556 | 4,000 | 4,593 | 13,149 | ||||||||
| Gross margin | $ | 2,400 | $ | 674 | $ | (241 | ) | $ | 2,833 | |||
| Selling andadministrative expenses | 1,609 | 961 | 653 | 3,223 | ||||||||
| Income beforetaxes | $ | 791 | $ | (287 | ) | $ | (894 | ) | $ | (390 | ) | |
Maria Carlo, the company'spresident, is concerned about the results of the pricing, selling,and production prices. After reviewing the second-quarter resultsshe asked her management staff to consider the following threesuggestions: |
| ⢠| Discontinue the S-Pump line immediately. S-Pumps would not bereturned to the product line unless the problems with the pump canbe identified and resolved. |
| ⢠| Increase quarterly sales promotion by $440,000 on the R-Pumpproduct line in order to increase sales volume by 15 percent. |
| ⢠| Cut production on the F-Pump line by 50 percent, and cut thetraceable advertising and promotion for this line to $130,000 eachquarter. |
Justin Sperry, the controller,suggested a more careful study of the financial relationships todetermine the possible effects on the companyâs operating resultsof the presidentâs proposed course of action. The president agreedand assigned JoAnn Brower, the assistant controller, to prepare ananalysis. Brower has gathered the following information. |
| ⢠| The unit sales prices for thethree pumps are as follows: |
| R-Pump | $ | 740 | |
| F-Pump | 410 | ||
| S-Pump | 680 | ||
| ⢠| The company is manufacturing atcapacity and is selling all the pumps it produces. |
| ⢠| All three pumps are manufacturedwith common equipment and facilities. |
| ⢠| The selling and administrative expense is allocated to the threepump lines based on average sales volume over the past threeyears. |
| ⢠| Special selling expenses (primarily advertising, promotion, andshipping) are incurred for each pump as follows: |
| Quarterly Advertising and Promotion | Shipping Expenses | |||||
| R-Pump | $ | 770,000 | $ | 44 | per unit | |
| F-Pump | 440,000 | 26 | per unit | |||
| S-Pump | 260,000 | 100 | per unit | |||
| ⢠| The unit manufacturing costs forthe three pumps are as follows: |
| R-Pump | F-Pump | S-Pump | |||||||
| Direct material | $ | 107.00 | $ | 65.00 | $ | 164.00 | |||
| Direct labor | 148.00 | 88.00 | 208.00 | ||||||
| Variablemanufacturing overhead | 163.00 | 118.00 | 208.00 | ||||||
| Fixed manufacturingoverhead | 66.68 | 79.88 | 137.66 | ||||||
| Total | $ | 484.68 | $ | 350.88 | $ | 717.66 | |||
| 1. Use the operatingdata presented for Ontario Pump Company and assume that thepresident's proposed course of action had been implemented at thebeginning of the second quarter. SHOW ALL WORK. |
| a. Calculate the net impact on income before taxes foreach of the three suggestions. Fill in the chartbelow.
b. calculate the contribution margin for S pump. c. calculate the contribution per direct-labor dollar for r pumpand f pump. |
A small manufacturing company in Toronto, Ontario, manufacturesthree types of pumps used in a variety of applications. For manyyears the company has been profitable and has operated at capacity.However, in the last two years prices on all pumps were reduced andselling expenses increased to meet competition and keep the plantoperating at capacity. Second-quarter results for the current year,which follow, typify recent experience. |
| ONTARIO PUMP COMPANY | ||||||||||||
| Income Statement | ||||||||||||
| Second Quarter | ||||||||||||
| (in thousands) | ||||||||||||
| R-Pump | F-Pump | S-Pump | Total | |||||||||
| Sales | $ | 6,956 | $ | 4,674 | $ | 4,352 | $ | 15,982 | ||||
| Cost of goodssold | 4,556 | 4,000 | 4,593 | 13,149 | ||||||||
| Gross margin | $ | 2,400 | $ | 674 | $ | (241 | ) | $ | 2,833 | |||
| Selling andadministrative expenses | 1,609 | 961 | 653 | 3,223 | ||||||||
| Income beforetaxes | $ | 791 | $ | (287 | ) | $ | (894 | ) | $ | (390 | ) | |
Maria Carlo, the company'spresident, is concerned about the results of the pricing, selling,and production prices. After reviewing the second-quarter resultsshe asked her management staff to consider the following threesuggestions: |
| ⢠| Discontinue the S-Pump line immediately. S-Pumps would not bereturned to the product line unless the problems with the pump canbe identified and resolved. |
| ⢠| Increase quarterly sales promotion by $440,000 on the R-Pumpproduct line in order to increase sales volume by 15 percent. |
| ⢠| Cut production on the F-Pump line by 50 percent, and cut thetraceable advertising and promotion for this line to $130,000 eachquarter. |
Justin Sperry, the controller,suggested a more careful study of the financial relationships todetermine the possible effects on the companyâs operating resultsof the presidentâs proposed course of action. The president agreedand assigned JoAnn Brower, the assistant controller, to prepare ananalysis. Brower has gathered the following information. |
| ⢠| The unit sales prices for thethree pumps are as follows: |
| R-Pump | $ | 740 | |
| F-Pump | 410 | ||
| S-Pump | 680 | ||
| ⢠| The company is manufacturing atcapacity and is selling all the pumps it produces. |
| ⢠| All three pumps are manufacturedwith common equipment and facilities. |
| ⢠| The selling and administrative expense is allocated to the threepump lines based on average sales volume over the past threeyears. |
| ⢠| Special selling expenses (primarily advertising, promotion, andshipping) are incurred for each pump as follows: |
| Quarterly Advertising and Promotion | Shipping Expenses | |||||
| R-Pump | $ | 770,000 | $ | 44 | per unit | |
| F-Pump | 440,000 | 26 | per unit | |||
| S-Pump | 260,000 | 100 | per unit | |||
| ⢠| The unit manufacturing costs forthe three pumps are as follows: |
| R-Pump | F-Pump | S-Pump | |||||||
| Direct material | $ | 107.00 | $ | 65.00 | $ | 164.00 | |||
| Direct labor | 148.00 | 88.00 | 208.00 | ||||||
| Variablemanufacturing overhead | 163.00 | 118.00 | 208.00 | ||||||
| Fixed manufacturingoverhead | 66.68 | 79.88 | 137.66 | ||||||
| Total | $ | 484.68 | $ | 350.88 | $ | 717.66 | |||
| 1. Use the operatingdata presented for Ontario Pump Company and assume that thepresident's proposed course of action had been implemented at thebeginning of the second quarter. SHOW ALL WORK. |
| a. Calculate the net impact on income before taxes for each ofthe three suggestions.
b. calculate the contribution margin for S pump. c. calculate the contribution per direct-labor dollar for r pumpand f pump. |
A small manufacturing company in Toronto, Ontario, manufacturesthree types of pumps used in a variety of applications. For manyyears the company has been profitable and has operated at capacity.However, in the last two years prices on all pumps were reduced andselling expenses increased to meet competition and keep the plantoperating at capacity. Second-quarter results for the current year,which follow, typify recent experience. |
| ONTARIO PUMP COMPANY | ||||||||||||
| Income Statement | ||||||||||||
| Second Quarter | ||||||||||||
| (in thousands) | ||||||||||||
| R-Pump | F-Pump | S-Pump | Total | |||||||||
| Sales | $ | 6,956 | $ | 4,674 | $ | 4,352 | $ | 15,982 | ||||
| Cost of goodssold | 4,556 | 4,000 | 4,593 | 13,149 | ||||||||
| Gross margin | $ | 2,400 | $ | 674 | $ | (241 | ) | $ | 2,833 | |||
| Selling andadministrative expenses | 1,609 | 961 | 653 | 3,223 | ||||||||
| Income beforetaxes | $ | 791 | $ | (287 | ) | $ | (894 | ) | $ | (390 | ) | |
Maria Carlo, the company'spresident, is concerned about the results of the pricing, selling,and production prices. After reviewing the second-quarter resultsshe asked her management staff to consider the following threesuggestions: |
| ⢠| Discontinue the S-Pump line immediately. S-Pumps would not bereturned to the product line unless the problems with the pump canbe identified and resolved. |
| ⢠| Increase quarterly sales promotion by $440,000 on the R-Pumpproduct line in order to increase sales volume by 15 percent. |
| ⢠| Cut production on the F-Pump line by 50 percent, and cut thetraceable advertising and promotion for this line to $130,000 eachquarter. |
Justin Sperry, the controller,suggested a more careful study of the financial relationships todetermine the possible effects on the companyâs operating resultsof the presidentâs proposed course of action. The president agreedand assigned JoAnn Brower, the assistant controller, to prepare ananalysis. Brower has gathered the following information. |
| ⢠| The unit sales prices for thethree pumps are as follows: |
| R-Pump | $ | 740 | |
| F-Pump | 410 | ||
| S-Pump | 680 | ||
| ⢠| The company is manufacturing atcapacity and is selling all the pumps it produces. |
| ⢠| All three pumps are manufacturedwith common equipment and facilities. |
| ⢠| The selling and administrative expense is allocated to the threepump lines based on average sales volume over the past threeyears. |
| ⢠| Special selling expenses (primarily advertising, promotion, andshipping) are incurred for each pump as follows: |
| Quarterly Advertising and Promotion | Shipping Expenses | |||||
| R-Pump | $ | 770,000 | $ | 44 | per unit | |
| F-Pump | 440,000 | 26 | per unit | |||
| S-Pump | 260,000 | 100 | per unit | |||
| ⢠| The unit manufacturing costs forthe three pumps are as follows: |
| R-Pump | F-Pump | S-Pump | |||||||
| Direct material | $ | 107.00 | $ | 65.00 | $ | 164.00 | |||
| Direct labor | 148.00 | 88.00 | 208.00 | ||||||
| Variablemanufacturing overhead | 163.00 | 118.00 | 208.00 | ||||||
| Fixed manufacturingoverhead | 66.68 | 79.88 | 137.66 | ||||||
| Total | $ | 484.68 | $ | 350.88 | $ | 717.66 | |||
| 1. Use the operatingdata presented for Ontario Pump Company and assume that thepresident's proposed course of action had been implemented at thebeginning of the second quarter. SHOW ALL WORK. |
| a. Calculate the net impact on income before taxes for each ofthe three suggestions.
b. calculate the contribution margin for S pump. c. calculate the contribution per direct-labor dollar for r pumpand f pump. |
