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Argentina Partners is concerned about the possible effects of inflation on its operations. Presently, the company sells 60,000 units for $30 per unit. The variable production costs are $15, and fixed costs amount to $700,000. Production engineers have advised management that they expect unit labor costs to rise by 15 percent and unit materials costs to rise by 10 percent in the coming year. Of the $15 variable costs, 50 percent are from labor and 25 percent are from materials. Variable overhead costs are expected to increase by 20 percent. Sales prices cannot increase more than 10 percent. It is also expected that fixed costs will rise by 5 percent as a result of increased taxes and other miscellaneous fixed charges.



The company wishes to maintain the same level of profit in real dollar terms. It is expected that to accomplish this objective, profits must increase by 6 percent during the year.
a: Compute the volume in units and the dollar sales level necessary to maintain the present profit level, assuming that the maximum price increase is implemented. (Do not round intermediate calculations. Round up your answer for "Volume in units" to the nearest whole number and round your answer for "Sales" to the nearest whole dollar amount.)


a. Compute the volume in units and the dollar sales level necessary to maintain the present profit level, assuming that the maximum price increase is implemented. (do not round intermediate calculations. Round up your answer for "Volume in units" to the nearest whole number and round your answer for "Sales" to the nearest whole dollar amount.)
Volume in units: _________
Sales: _________

b. Compute the volume of sales and the dollar sales level necessary to provide the 6 percent increase in profits, assuming that the maximum price increase is implemented.
Volume in Units: _____________
Sales: ______________

c. If the volume of sales were to remain at 60,000 units, what price increase would be required to attain the 6 percent increase in profits? Calculate the new price.
New Price: ______________

Sagot :

anthougo

a) The volume in units and dollars necessary to maintain the present profit level, assuming that the maximum price increase is implemented as follows:

Volume = 59,365 units

Dollars = $1,959,059

b) The volume in units and dollars necessary to provide a 6% increase in profits, assuming that the maximum price increase is implemented is as follows:

Volume = 60,127 units

Dollars = $1,984,202

c)  If the sales volume were to remain at 60,000 units, the price increase required to attain the 6 percent increase in profits is $33.

Data and Calculations:

Sales units = 60,000 units       Total

Selling price = $30                 $1,800,000

Variable costs = $15                   900,000

Fixed costs = $700,000             700,000

Profit level =                              $200,000

Contribution margin per unit = $15

Contribution margin ratio = 50%

Labor cost of VC = $7.50 ($15 x 50%)

New labor cost = $8.625 ($7.50 x 1.15)

Direct materials of VC = $3.75 ($15 x 25%)

New direct materials costs = $4.125 ($3.75 x 1.1)

Variable overhead costs = $3.75 ($15 x (1 - 0.75)

New variable overhead costs = $4.50 ($3.75 x 1.20)

New variable costs per unit = $17.25 ($4.50 + $8.625 + $4.125)

The expected increase in sales prices ≤ 10%

Selling price per unit = $33 ($30 x 1.1)

New variable costs per unit = $17.25

Contribution margin per unit = $15.75

Contribution margin ratio = 0.47727

New fixed costs = $735,000 ($700,000 x 1.05)

Profit level increase = 6%

New profit level = $212,000 ($200,000 x 1.06)

a) Sales volume and dollars are as follows:

Volume = Fixed Costs + Profit/Contribution Margin per unit

= ($735,000+ $200,000)/$15.75

= $935,000/$15.75

= 59,365 units

Dollars = $1,959,059 ($935,000/0.47727)

b) Sales volume and dollars are as follows:

Volume = Fixed Costs + Profit/Contribution Margin per unit

= ($735,000+ $212,000)/$15.75

= $947,000/$15.75

= 60,127 units

Dollars = $1,984,202 ($947,000/0.47727)

c) Price = $ (Fixed Costs + Variable Costs + Profit)/60,000

= $ ($735,000 + $1,035,000 + $212,000)/60,000

= $33

Learn more about cost-volume-profit analysis at https://brainly.com/question/23894490

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