Submitted by: Submitted by jonam
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Date Submitted: 03/21/2011 05:25 AM
ANSWER TO TUTORIAL CASE: Crimicar Components Inc.
Gill Leatherbarrow's report should contain schedules detailing for each option:
Options 1
(no change) 2
(+5%) 3
(+10%) 4
(+25%)
Unit selling price $ 10.00 10.00 9.50 9.00
Sales units 1,000,000 1,050,000 1,100,000 1,240,000
$ $ $ $
Total sales 10,000,000 10,500,000 10,450,000 11,160,000
Variable cost 5,000,000 5,775,000 5,225,000 5,356,800
Contribution margin 5,000,000 4,725,000 5,225,000 5,803,200
(Contribution /sales %) 50% 45% 50% 52%
Fixed costs 3,000,000 3,025,000 3,250,000 3,750,000
2,000,000 1,700,000 1,975,000 2,053,200
Contribution from top slice 10,000 (see below) 29,300
Net operating income $2,000,000 $1,700,000 $1,975,000 $2,082,500
Break-even sales value 6,000,000 6,722,222 6,500,000 7,211,538
Break-even units 600,000 672,223 684,210 801282
Break-even volume % 60.0% 64.0% 62.2% 64.6%
Variable cost/unit 5.00 5.50 4.75 4.32
Fixed cost /unit (based on actual production) 3.00 2.88 2.95 3.02
Full cost/unit 8.00 8.38 7.70 7.34
Effect of selling 10,000 units under option 4
Sales price 7.25 9.00
Variable cost/unit 4.32 4.32
Contribution/unit 2.93 4.68
Extra contribution on 10,000 units 29,300 46,800
Less: extra advertising 20,000
Extra profit – S/P at $7.25 wins! $29,300 $26,800
Option 4 produces the largest net income – just!. However, note that Option 1 would...