90.2K

Verified Solution

Link Copied!

In an attempt to improve profit performance, Anderson Company$$s management is considering a number of alternative actions. An October contribution income statement for Anderson Company follows.

ANDERSON COMPANY

Contribution Income Statement

For Month of October

Sales $(21,600$ units x $$75)$ $$1,620,000$

Less variable costs

Direct materials $(21,600$ units x $$10)$ $$216,000$

Direct labor $(21,600$ units x $$10)$ $$216,000$

Variable factory overhead $(21,600$ units x $$4)$ $$86,400$

Selling and administrative $(21,600$ units x $$2)$ $$43,200$ $$561,600$

Contribution Margin $(21,600$ units x $$49)$ $$1,058,400$

Less fixed costs

Factory Overhead $$648,000$

Selling and administrative $$432,000$ $$1,0$

$80,000$

Net Income $($loss$)$ $$(21,600)$

Required

Determine the effect of each of the following independent situations on monthly profit.

Note: Do not use negative signs with your answers.

a$.$ Purchasing automated assembly equipment, which should reduce direct labor costs by $$4$ per unit and increase variable overhead costs by $$1$ per unit and fixed factory overhead by $$21,600$ per month.

b$.$ Reducing the selling price by $$5$ per unit. This should increase the monthly sales by $5,400$ units. At this higher volume, additional equipment and salaried personnel would be required. This will increase fixed factory overhead by $$7,200$ per month and fixed selling and administrative costs by $$3,240$ per month.

c$.$ Buying rather than manufacturing a component of Anderson$$s final product. This will increase direct materials costs by $$5$ per unit. However, direct labor will decline $$3$ per unit, variable factory overhead will decline $$1$ per unit, and fixed factory overhead will decline $$45,000$ per month.

d$.$ Increasing the unit selling price by $$5$ per unit. This action should result in a $3,600$ unit decrease in monthly sales.

e$.$ Combining alternatives $($a$)$ and $($d$).$

Please answer all parts of the question.

Answer & Explanation Solved by verified expert

See Answer