80.2K

Verified Solution

Link Copied!

Accounting Case Study.

Need question 6 and any other questions to get the answer to question 6

Decision inputs (data) Data: Cost structure alternative Cost structure 1 alternative 2 Delivery price per package delivered $55 $55 Variable cost per package delivered $38 $18 Fixed costs (per year) $519,000 $2,269.000 Case A Requirements Provide a written report to address the following questions. This report will be presented to the client, so it should be written professionally. Your report should show your calculations. 1. One issue of interest to your client is the volume of business (on an annual basis) needed for her to break even? Calculate the break-even point, in terms of number of deliveries (i.e. units per year) and dollars for cost structure alternative 1 and cost structure alternative 2. 2. Gloria estimates that sales volume will be 60,000 units for alternative 1 and 120,000 units for alternative 2. What is the margin of safety for cost structure alternative 1, in both units and in dollars at that sales volume? What is the margin of safety ratio for both alternatives? Explain to Gloria what is meant by margin of safety and what information it provides. 3. Profit planning: Gloria indicates that she is not contemplating the Pack-It-Up business venture with the objective of just breaking even? You are asked to demonstrate to Gloria the number of deliveries, that would have to be made under cost structure alternative 1 and alternative 2 to generate a pre- tax profit of $25,000 per year. 4. Provide a check on your answer in #3 by constructing for your client a pro-forma CVP income statement for alternative 1 and alternative 2. 5. Thus far you've focused on demonstrating for your client how profit for her proposed new business changes in response to changes in volume. But, you know that profit is only one facet of the risk-return trade-off model. You want to make sure that in the report you are preparing for your client you adequately address the issue of risk, beyond the elementary analyses presented above. Calculate the degree of operating leverage for alternative 1 and alternative 2 using the sales targets identified in #3. 6. What alternative is more risky and why? Demonstrate with an example of 10% increase or decrease in sales

Answer & Explanation Solved by verified expert

See Answer