The advantages of calculating Contribution Margins of a company’s products seem to be overwhelming according to the author. One can quickly calculate their break-even point and evaluate pricing changes and product quality improvements. But after reviewing several annual reports, apparently, no one is using this technique. What’s missing in this analysis?

The advantages of calculating Contribution Margins of a company’s products seem to be overwhelming according to the author. One can quickly calculate their break-even point and evaluate pricing changes and product quality improvements. But after reviewing several annual reports, apparently, no one is using this technique. What’s missing in this analysis?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 2EB: Boxer Production, Inc., is in the process of considering a flexible manufacturing system that will...

See similar textbooks

Similar questions

Your team is conducting a CVP analysis for a new product. Different sales projections have different incomes. One member suggests picking numbers yielding favorable income because any estimate is “as good as any other.” Another member suggests dropping unfavorable data points for cost estimation. What do you do?
You are the new cost accountant for ABX Corporation. After careful review of the company's operation you have been tasked to determine the company's break-even point in units and dollars, the numbers sold to meet the company's target profit and contribution income statement for both outcomes. Management has also asked that you discuss the risk, uncertainty, changing variables and margin of safety regarding Cost Volume Profit Analysis. Based on your discussion and calculations what would be your recommendation if the company wanted to increase variable cost by 20% and sales price by 5%? Support your recommendation. Company's Data: ABX Corporation sold it's production for %600/unit. Fixed cost are $725,000 per year. Variable costs are $455 per unit. ABX Corporation desires a target profit of $1,250,000 per year.
You are the new cost accountant for ABX Corporation. After careful review of the company’s operations you have been tasked to determine the company’s break-even point in units and dollars, the numbers sold to meet the company’s target profit and contribution income statement for both outcomes.Management has also asked that you discuss the risk, uncertainty, changing variables and margin of safety regarding Cost Volume Profit Analysis. Based on your discussion and calculations what would be your recommendation if the company wanted to increase variable cost by 20% and sales price by 5%? Support your recommendation. ABX Corporation sold it's product for $600/unit. Fixed cost are $725,000 per year. Variable costs are $455 per unit. ABX Corporation desires a target profit of $1,250,000 per year.
Shatta movement LTD produces a single product. The company's directors want to explore new markets, and they require an accurate analysis of the firm's cost structure for both forecasting and pricing purpose. An attemp to provide this analysis from the aggregation of individual cost has produced a poor correspondence between actual and predicted cost. You are an accountant employee by Shatta Movement Ltd, and you have been asked to provide a statistical approach to the problem. The financial director has given you the following data: Period output (unit) average unit cost (GHS) July August September October November December 9,000 14,000 11,000 8,000 6,000 12,000 12.8 13 11.4 12 13 11.7 You obtain the following further information: 1. The cost from which the averages have been computed consist of the firm's entire cost for the relevant month. 2. Fixed coat can be assumed to be unaffected by seasonal factors except for harmattan heating. In July and August a…
Using your answer to Requirement 1, assume that Reshier Company is considering dropping any model with a negative product margin. What are the alternatives? Which alternative is more cost effective and by how much? (Assume that any traceable fixed costs can be avoided.) Do NOT round interim calculations and, if required, round your answer to the nearest dollar. will add $fill in the blank 8723bbfe4004028_3 to operating income 3. What if Reshier Company can only avoid 182 hours of engineering time and 4,800 hours of setup time that are attributable to Model 1? How does that affect the alternatives presented in Requirement 2? Which alternative is more cost effective and by how much? Do NOT round interim calculations and, if required, round your answer to the nearest dollar. will add $fill in the blank 8723bbfe4004028_5 to operating income
The president of Poleski would like to know the effect that each of the following suggestions for improving performance would have on contribution margin per unit, sales needed to break even, and projected net income for next year. Each change should be considered independently. Reset the Data Section to its original values after each suggestion is analyzed. Fill in the table following the suggestions with the results of your analysis. a. The president suggests cutting the products price. Since the market is relatively sensitive to price, . . . a 10% cut in price ought to generate a 30% increase in sales (to 156,000 units). How can you lose? b. The sales manager feels that putting all sales personnel on straight commission would help. This would eliminate 77,000 in fixed sales salaries expense. Variable sales commissions would increase to 2.00 per unit. This move would also increase sales volume by 30%. c. Poleskis head of product engineering wants to redesign the package for the product. This will cut 1.00 per unit from direct materials and 0.50 per unit from direct labor, but will increase fixed factory overhead by 100,000 for additional depreciation on the new packaging machine. The package redesign would not affect sales volume. d. The firms consumer marketing manager suggests undertaking a new advertising campaign on Facebook. This would cost 30,000 more than is currently planned for advertising but would be expected to increase sales volume by 30%. e. The production superintendent suggests raising quality and raising price. This will increase direct materials by 1.00 per unit, direct labor by 0.50 per unit, and fixed factory overhead by 110,000. With improved quality, . . . raise the price to 18.50 and advertise the heck out of it. If you double your current planned advertising, Ill bet you can increase your sales volume by 30%.
Tell what life-cycle cost management is and how it can be usedto maximize profits over a product's life cycle.Nico Parts, Inc., produces electronic products with short life cycles (of lessthan two years). Development has to be rapid, and the profitability of theproducts is tied strongly to the ability to find designs that will keep production and logistics costs low. Recently, management has also decided that postpurchase costs are important in design decisions. Last month, a proposal for a new product was presented to management. The total market was projected at 200,000 units (for the two-year period). The proposed selling price was $130 per unit. At this price, market share was expected to be 25 percent. The manufacturing and logistics costs were estimated to be $120 per unit. Upon reviewing the projected figures, Brian Metcalf, president of Nico, called in his chief design engineer, Mark Williams, and his marketing manager, CathyMcCourt. The following conversation was recorded:…
Tell what life-cycle cost management is and how it can be usedto maximize profits over a product's life cycle.Nico Parts, Inc., produces electronic products with short life cycles (of lessthan two years). Development has to be rapid, and the profitability of theproducts is tied strongly to the ability to find designs that will keep production and logistics costs low. Recently, management has also decided that postpurchase costs are important in design decisions. Last month, a proposal for a new product was presented to management. The total market was projected at 200,000 units (for the two-year period). The proposed selling price was $130 per unit. At this price, market share was expected to be 25 percent. The manufacturing and logistics costs were estimated to be $120 per unit. Upon reviewing the projected figures, Brian Metcalf, president of Nico, called in his chief design engineer, Mark Williams, and his marketing manager, CathyMcCourt. The following conversation was recorded:…
Internal production supervisors of a company’s product line would be MOST likely to ask which of the following questions? Select answer from the options below 1.How much profit can the company expect to earn this year? 2.What can the company afford to pay its employees this year? 3.Which product line is the least profitable and should be eliminated? 4.How much should the company charge for its products to maximize its profit?
In attempting to achieve better results in the marketplace, management has been looking at changing the reward system for marketing, distribution and sales personnel. This would result in an increase in variable marketing and administrative costs by $2 per unit, and would reduce fixed marketing and distribution costs by $100,000: Calculate the number of units required to breakeven if management implemented the changes and Would you suggest that management pursue the changes? Explain By reference to the above data:How can a company effectively use CPV (Cost-Volume-Profit) analysis to make strategic decisions about its product pricing and production levels?
The following series of statements or phrases are associated with product life-cycle viewpoints. Identify whether each one is associated with the marketing, production, or customer viewpoint. Where possible, identify the particular characteristic being described. If the statement or phrase fits more than one viewpoint, label it as interactive. Explain the interaction. a. Sales are increasing at an increasing rate. b. The cost of maintaining the product after it is purchased. c. The product is losing market acceptance and sales are beginning to decrease. d. A design is chosen to minimize post-purchase costs. e. Ninety percent or more of the costs are committed during the development stage. f. The length of time that the product serves the needs of a customer. g. All the costs associated with a product for its entire life cycle. h. The time in which a product generates revenue for a company. i. Profits tend to reach peak levels during this stage. j. Customers have the lowest price sensitivity during this stage. k. Describes the general sales pattern of a product as it passes through distinct life-cycle stages. l. The concern is with product performance and price. m. Actions taken so that life-cycle profits are maximized. n. Emphasizes internal activities that are needed to develop, produce, market, and service products.
Boxer Production, Inc., is in the process of considering a flexible manufacturing system that will help the company react more swiftly to customer needs. The controller, Mick Morrell, estimated that the system will have a 10-year life and a required return of 10% with a net present value of negative $500,000. Nevertheless, he acknowledges that he did not quantify the potential sales increases that might result from this improvement on the issue of on-time delivery, because it was too difficult to quantify. If there is a general agreement that qualitative factors may offer an additional net cash flow of $150,000 per year, how should Boxer proceed with this Investment?