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Manufacturing Costs Units sold Selling price Direct material Direct labour Leashes 50,000 $30.00 $11.25 $10.00 Boardbags 25.000 $110.00 $60.00 $37.00 Paddles 30,000 $80.00 $20.00 $51.50 Variable overhead -percent of direct labour 10% 10% 10% Fixed manufacturing overhead $250,000 Corporate fixed expenses: Research and development $20,000 Selling and marketing $58,000 General administrative $25,000 Fixed manufacturing overhead is allocated to segments based on variable overhead amounts All three managers have received the above information and were asked to review it prior to the meeting. In addition, Felicia has provided them with her assumptions regarding business performance next year. Specifically, she expects product sales prices to remain unchanged, sales volumes for all products to increase by 10%, product variable costs to increase by 3%, and all fixed costs to be held to an increase of 2%. Manager 1: One of the managers believes greater profits can be taken from the existing product line. In his presentation, he suggested that more aggressive product promotion would cost little and would dramatically increase unit sales of all products. To achieve this, he recommended a modest increase in promotional spending. Specifically, selling expense should be increased by 10% instead of the 2% proposed by Amanda. The result, the manager forecasted, will be a 50% increase in sales volume across all products rather than the 10% forecast by Felicia. All other assumptions provided by Felicia are unchanged in this strategic option (ie, sales price, variable costs, and fixed costs other than selling) Manager 2: Manager 2: Cutting costs and increasing selling prices was the theme of the manager's 2 presentation. In this scenario, prices for all products would be increased by 8% over the prior year's prices. Profits could also be enhanced by reducing variable costs by 1% and all fixed costs (manufacturing and corporate) by 4% below the prior year's amounts. Manager 2 estimated that these changes would cause sales volumes to drop by 2% (rather than increasing as Amanda projected) for all products. She warned in her presentation that this may require the use of lower quality raw materials and that all salaried staff would require a pay freeze for one year. Manager 3: Has been attending the same trade shows as Felicia over the past year and has also become aware of a growing demand for carbon paddles. In his presentation, Manager 3 recommended introducing a new carbon paddle No additional equipment is required. All of Felicia's assumptions were maintained in Manager 3's scenario, except that last year's quantity of unit sales of the aluminum paddle would be displaced by the new paddle at a rate of 1 aluminum paddle for every 4 carbon paddles sold. Manager 3 forecasted sales of 8,000 carbon paddles at a price of $240 each. Manager 3 has determined that direct material costs will be $66 per carbon paddle, direct labour costs will be $55 per paddle, and variable overhead will be 10% of direct labour costs. Prepare 5 budgeted segmented income statements (.e., one for each of the prior year, Amanda's budget, Manager 1's, 2's, 3's budget) Prepare a report for Felicia that includes a recommendation based on the case facts and the quantitative and qualitative analysis that you have conducted. Income statement should look like this: Aluminum Paddles Leashes Boardbags Total Sales $ xxx $ xxx $ xxx $ xocx Cost of Goods Sold Direct materials Direct labour Variable overhead Fixed manufacturing overhead Total cost of goods sold $ xxx XOOX xxx $ xocx $ xox XXX Xocx XOOK $ xox $ XOOX XXX XOXX XXX $ xox $ xox XOX XXX XXX $ xox $ xox $ xxx s xxx Gross Margin Research and development Selling and marketing General administrative Net Income $ xxx XXX XXX XOX $ xxx Manufacturing Costs Units sold Selling price Direct material Direct labour Leashes 50,000 $30.00 $11.25 $10.00 Boardbags 25.000 $110.00 $60.00 $37.00 Paddles 30,000 $80.00 $20.00 $51.50 Variable overhead -percent of direct labour 10% 10% 10% Fixed manufacturing overhead $250,000 Corporate fixed expenses: Research and development $20,000 Selling and marketing $58,000 General administrative $25,000 Fixed manufacturing overhead is allocated to segments based on variable overhead amounts All three managers have received the above information and were asked to review it prior to the meeting. In addition, Felicia has provided them with her assumptions regarding business performance next year. Specifically, she expects product sales prices to remain unchanged, sales volumes for all products to increase by 10%, product variable costs to increase by 3%, and all fixed costs to be held to an increase of 2%. Manager 1: One of the managers believes greater profits can be taken from the existing product line. In his presentation, he suggested that more aggressive product promotion would cost little and would dramatically increase unit sales of all products. To achieve this, he recommended a modest increase in promotional spending. Specifically, selling expense should be increased by 10% instead of the 2% proposed by Amanda. The result, the manager forecasted, will be a 50% increase in sales volume across all products rather than the 10% forecast by Felicia. All other assumptions provided by Felicia are unchanged in this strategic option (ie, sales price, variable costs, and fixed costs other than selling) Manager 2: Manager 2: Cutting costs and increasing selling prices was the theme of the manager's 2 presentation. In this scenario, prices for all products would be increased by 8% over the prior year's prices. Profits could also be enhanced by reducing variable costs by 1% and all fixed costs (manufacturing and corporate) by 4% below the prior year's amounts. Manager 2 estimated that these changes would cause sales volumes to drop by 2% (rather than increasing as Amanda projected) for all products. She warned in her presentation that this may require the use of lower quality raw materials and that all salaried staff would require a pay freeze for one year. Manager 3: Has been attending the same trade shows as Felicia over the past year and has also become aware of a growing demand for carbon paddles. In his presentation, Manager 3 recommended introducing a new carbon paddle No additional equipment is required. All of Felicia's assumptions were maintained in Manager 3's scenario, except that last year's quantity of unit sales of the aluminum paddle would be displaced by the new paddle at a rate of 1 aluminum paddle for every 4 carbon paddles sold. Manager 3 forecasted sales of 8,000 carbon paddles at a price of $240 each. Manager 3 has determined that direct material costs will be $66 per carbon paddle, direct labour costs will be $55 per paddle, and variable overhead will be 10% of direct labour costs. Prepare 5 budgeted segmented income statements (.e., one for each of the prior year, Amanda's budget, Manager 1's, 2's, 3's budget) Prepare a report for Felicia that includes a recommendation based on the case facts and the quantitative and qualitative analysis that you have conducted. Income statement should look like this: Aluminum Paddles Leashes Boardbags Total Sales $ xxx $ xxx $ xxx $ xocx Cost of Goods Sold Direct materials Direct labour Variable overhead Fixed manufacturing overhead Total cost of goods sold $ xxx XOOX xxx $ xocx $ xox XXX Xocx XOOK $ xox $ XOOX XXX XOXX XXX $ xox $ xox XOX XXX XXX $ xox $ xox $ xxx s xxx Gross Margin Research and development Selling and marketing General administrative Net Income $ xxx XXX XXX XOX $ xxx

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