Wiley Plus Assignment

Problem 6-1A

Fredonia Inc. had a bad year in 2013. For the first time in its history, it operated at a loss. The company’s income statement showed the following results from selling 79,100 units of product: Net sales $1,542,450; total costs and expenses $1,750,700; and net loss $208,250. Costs and expenses consisted of the following.

Total

Variable

Fixed

Cost of goods sold

$1,197,800

$776,100

$421,700

Selling expenses

427,300

79,600

347,700

Administrative expenses

125,600

53,800

71,800

$1,750,700

$909,500

$841,200

Management is considering the following independent alternatives for 2014.

1.

Increase unit selling price 22% with no change in costs and expenses.

2.

Change the compensation of salespersons from fixed annual salaries totaling $200,000 to total salaries of $36,100 plus a 5% commission on net sales.

3.

Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50:50.

(a)Compute the break-even point in dollars for 2014.(Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answers to 0 decimal places, e.g. 2,510.)

Break-even point

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(b)Compute the break-even point in dollars under each of the alternative courses of action.(Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answers to 0 decimal places, e.g. 2,510.)

Break-even point

1.

Increase selling price

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2.

Change compensation

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3.

Purchase machinery

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Which course of action do you recommend?.0/msohtmlclip1/01/clip_image001.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>

Exercise 7-2 (Part Level Submission)

Gruden Company produces golf discs which it normally sells to retailers for $6.90 each. The cost of manufacturing 20,700 golf discs is:

Materials

$9,729

Labor

30,636

Variable overhead

22,149

Fixed overhead

40,572

Total

$103,086

Gruden also incurs 8% sales commission ($0.55) on each disc sold.

McGee Corporation offers Gruden $5 per disc for 4,700 discs. McGee would sell the discs under its own brand name in foreign markets not yet served by Gruden. If Gruden accepts the offer, its fixed overhead will increase from $40,572 to $46,294 due to the purchase of a new imprinting machine. No sales commission will result from the special order.

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(a)

Prepare an incremental analysis for the special order.(Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Reject
Order

Accept
Order

Net Income
Increase
(Decrease)

Revenues

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Materials

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Labor

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Variable overhead

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Fixed overhead

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Sales commissions

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Net income

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