The Central Valley Company is a manufacturing firm that prod

The Central Valley Company is a manufacturing firm that produces and sells a single product. The company’s revenues and expenses for the last four months are given below.

The Central Valley Company is a manufacturing firm that produces and sells a single product. The company\'s revenues and expenses for the last four months are given below Central Valley Company Comparative Income Statemert ril 5,600 March June May 6,900 8,200 $756,400 $694,400 855,600 $1,016,800 518,568 6,100 Sales in units Sales revenue Less: Cost of goods sold 400,150 374976 444912 Gross margin Less: Operating Expenses $356,250 $319,424 $410,688 $ 498,232 Shipping expense Advertising expense Salaries and commissions Insurance expense Amortization expense $63,700 53,800 67,20065,500 86,500 176,000 14 500 47,500 86,500 86,500 86,500 164,100 7500 167,000 14,500 47,500 14,500 47,500 14 500 47,500 Total operating expenses $376,300 $339 800 $382,700 390,000 Net income $ (20,050) (20,376) 27,988 108,232 Required: 1. Management is concerned about the losses experienced during the spring and would like to know more about the cost behaviour. Develop a cost equation for each of the costs. (Do not round intermediate calculations. Round \"Per Unit\" answers to 2 decimal places.) Cost of goods sold Shipping Salaries & commission - per unit per unit per unit 2. Assume that fixed costs are incurred uniformly throughout the year. Compute the annual break-even sales, and the profit if 77,500 units are sold during the year. (Round \"Break-even sales\" answer to nearest whole number.) Break-even sales units Annual profit 77,500 units)

Solution

1) Cost of goods sold = $     65,682 + $                    55.23 per unit Shipping = $     28,600 + $                       4.50 per unit Salaries and commission = $     54,558 + $                    14.81 per unit Separation of fixed and variable portion of cost by high and low method: Cost of goods sold: Variable COGS = (518568-374976)/(8200-5600) = $               55.23 Fixed portion = 518568-8200*55.23 = $            65,682 Shipping: Variable portion = (65500-53800)/(8200-5600) = $                 4.50 Fixed portion = 65500-8200*4.5 = $            28,600 Salaries and commission: Variable portion = (176000-137500)/(8200-5600) = $               14.81 Fixed portion = 176000-8200*14.81 = $            54,558 Note: Fixed costs are calculated for a month. 2) Annual break even sale in units = Annual fixed costs/CM per unit Fixed costs = (65682+28600+54558+86500+14500+47500)*12 = $      35,68,080 CM per unit: Sales price per unit = 1016800/8200 = $            124.00 Variable cost per unit = 55.23+4.50+14.81 = $               74.54 CM per unit $               49.46 Annual break even sale in units = 3568080/46.46 = 72141 Units Annual profit (77500 units) = 77500*49.46-297340*12 = $         2,65,070 3) Revised contribution margin per unit = 114.00 - 74.54 = $               39.46 Revised profit = (77500+7200)*39.46 - 3568080 = $       -2,25,818