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Solution: Show your your analysis in organized schedules as much as possible. A schedule for completing Requirement #1 is provided for you. Be sure to properly link cells and use formulas where applicable. Requirement 1: Scenario 1 Scenario 2 Scenario 3 Current Year $35.00 43,000 4 Problem B (26 points): 5 Block Ltd makes BLOCKS. Their pre-tax income and their margin of safety have both been low 6 compared to the levels the company would like to achieve. Consequently, they asked their 7 employees to do some research and come up with suggestions that would result in increases of 8 both pre-tax income and their margin of safety over the next year. The current pricing structure 9 consists of the following data points: 10 Selling price $35.00 Unit volume 43,000 Variable costs per unit: Material $9.60 Direct labor $5.80 Overhead $0.62 Packaging $0.95 Fixed costs: Manufacturing $ 290,000 Selling and administrative $ 354,500 Selling price Unit volume Variable costs per unit: Material Direct Labor Overhead Packaging $9.60 $5.80 $0.62 $0.95 Fixed costs: Manufacturing Selling and administrative $290,000 $354,500 Break Even Analysis: In Units In Sales Dollars 22 Three employee teams have come up with different plans to improve pre-tax income and the 23 margin of safety for next year. Respond to Required Items #1, 2, & 3 for the Current Year and for 24 each of the Three Scenarios suggested by the employee teams. Answer Required Item #4 for 25 each of the Three Scenarios and then make the decision requested in Required Item #5. 26 Problem A. Problem B. Problem C. Problem D. + Requirement 2: E I J K L M N O A B C F G H 25 each of the Three Scenarios and then make the decision requested in Required Item #5. 26 Requirement 2: 27 Required: 28 1. Compute the Break-Even point in both units and sales dollars for the Current Data and each 29 of the Three Scenarios. (4 points) 30 2. Provide a Contribution Margin Income Statement in proper form for the Current Data and 31 each of the Three Scenarios. (9 points) 32 3. Provide the Margin of Safety calculation for the Current Data and each of the Three Scenarios. 33 (4 points) 34 4. Briefly, list two pros and two cons that you consider important when comparing the results of 35 implementing each of the Three Scenarios. (6 points) 36 5. Choose the Scenario that you would recommend to the company and briefly explain why it is 37 the best choice. (3 points) Requirement 3: 38 39 Current Data--Check Figure: Margin of Safety = 16.87% Requirement 4: Scenario 1: Pros: 41 Scenario 1--Check Figure: CM% = 58.94% 42 Research indicates that the company can purchase a different material, of equal quality, to 43 construct the blocks. This would reduce material costs by 18%. 44 Using the new material would also result in a 15% reduction in direct labor costs. 45 . All other data points remain constant. Cons: 47 Scenario 2--Check Figure: BE in Units = 27,510 48 Research indicates that the company can purchase a different material, of equal quality, to Problem A Problem R. Problem Problem J K L M Scenario 2: Pros: Cons: A B C F G H. I 47 Scenario 2--Check Figure: BE in Units = 27,510 48 Research indicates that the company can purchase a different material, of equal quality, to 49 construct the blocks. This would reduce material costs by 18%. 50 . Using the new material would also result in a 15% reduction in direct labor costs. 51 Market research indicates that the company could increase the selling price by 8%, but that 52 doing so would result in a 5% decrease in units sold. 53 . All other data points remain constant. 54 55 Scenario 3--Check Figure: Pre-tax Income = $351,406 56 Negotiations with suppliers resulted in an agreement that would decrease the cost of the 57 same new material mentioned in Scenarios 1 and 2 by 25% if the company purchased it in 58 To use up the material purchased in the amounts required to get the discount, the company 59 would need to increase sales unit volume by 35%. Market research indicates that this is possible as long as the selling price is decreased by 15%. 61 Market research also indicates that improved packaging would be needed to achieve the needed sales volume levels. The packaging costs would increase by 20%. 63 Direct labor costs would remain the same as they were in Scenarios 1 and 2. Scenario 3: Pros: Cons: 62 Requirement 5--Recommendation: Problem A. Problem B. Problem C. Problem D. |

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