Scholes Systems supplies a particular type of office chair to large retailers such as Target, Costco, and Office Max. Scholes is concerned about the possible effects of inflation on its operations. Presently, the company sells 94,000 units for $50 per unit. The variable production costs are $20, and fixed costs amount to $1,540,000. Production engineers have advised management that they expect unit labor costs to rise by 15 percent and unit materials costs to rise by 10 percent in the coming year. Of the $20 variable costs, 50 percent are from labor and 25 percent are from materials. Variable overhead costs are expected to increase by 20 percent. Sales prices cannot increase more than 10 percent. It is also expected that fixed costs will rise by 4 percent as a result of increased taxes and other miscellaneous fixed charges.
The company wishes to maintain the same level of profit in real dollar terms. It is expected that to accomplish this objective, profits must increase by 9 percent during the year.
Required:
a. Compute the volume in units and the dollar sales level necessary to maintain the present profit level, assuming that the maximum price increase is implemented. (Do not round intermediate calculations. Round up your answer for "Volume in units" to the nearest whole number and round your answer for "Sales" to the nearest whole dollar amount.)
b. Compute the volume of sales and the dollar sales level necessary to provide the 9 percent increase in profits, assuming that the maximum price increase is implemented. (Do not round intermediate calculations. Round up your answer for "Volume in units" to the nearest whole number and round your answer for "Sales" to the nearest whole dollar amount.)
c. If the volume of sales were to remain at 94,000 units, what price change would be required to attain the 9 percent increase in profits? Calculate the new price. (Round intermediate calculations of unit cost and final answer to 2 decimal places.)
Scholes Systems supplies a particular type of office chair to large retailers such as Target, Costco, and Office Max. Scholes is concerned about the possible effects of inflation on its operations. Presently, the company sells 94,000 units for $50 per unit. The variable production costs are $20, and fixed costs amount to $1,540,000. Production engineers have advised management that they expect unit labor costs to rise by 15 percent and unit materials costs to rise by 10 percent in the coming year. Of the $20 variable costs, 50 percent are from labor and 25 percent are from materials. Variable overhead costs are expected to increase by 20 percent. Sales prices cannot increase more than 10 percent. It is also expected that fixed costs will rise by 4 percent as a result of increased taxes and other miscellaneous fixed charges.
The company wishes to maintain the same level of profit in real dollar terms. It is expected that to accomplish this objective, profits must increase by 9 percent during the year.
Required:
a. Compute the volume in units and the dollar sales level necessary to maintain the present profit level, assuming that the maximum price increase is implemented. (Do not round intermediate calculations. Round up your answer for "Volume in units" to the nearest whole number and round your answer for "Sales" to the nearest whole dollar amount.)
b. Compute the volume of sales and the dollar sales level necessary to provide the 9 percent increase in profits, assuming that the maximum price increase is implemented. (Do not round intermediate calculations. Round up your answer for "Volume in units" to the nearest whole number and round your answer for "Sales" to the nearest whole dollar amount.)
c. If the volume of sales were to remain at 94,000 units, what price change would be required to attain the 9 percent increase in profits? Calculate the new price. (Round intermediate calculations of unit cost and final answer to 2 decimal places.)
Related questions
Argentina Partners is concerned about the possible effects ofinflation on its operations. Presently, the company sells 64,000units for $50 per unit. The variable production costs are $30, andfixed costs amount to $740,000. Production engineers have advisedmanagement that they expect unit labor costs to rise by 20 percentand unit materials costs to rise by 5 percent in the coming year.Of the $30 variable costs, 50 percent are from labor and 20 percentare from materials. Variable overhead costs are expected toincrease by 25 percent. Sales prices cannot increase more than 10percent. It is also expected that fixed costs will rise by 7percent as a result of increased taxes and other miscellaneousfixed charges. |
The company wishes to maintain thesame level of profit in real dollar terms. It is expected that toaccomplish this objective, profits must increase by 8 percentduring the year. |
| Required: |
| (a) | Compute the volume in units and the dollar sales level necessaryto maintain the present profit level, assuming that the maximumprice increase is implemented. (Round only yourintermediate per unit cost calculations to 2 decimal places. Roundup your Volume in Units final answer to the nearest whole unit.Round your Sales final answer to the nearest wholedollar.) Units in Volume = Sales = |
