Unit 3 Assignment Exercise 9 35 P 350 Variable Costs Per Ice

Unit 3 Assignment Exercise 9 35 P 350variable Costs Per Ice Cream

Unit 3 Assignment Exercise 9-35; p 350 Variable Costs per ice cream Direct Labor $13.50 Direct Materials $14.50 Variable Overhead $6.00 Total Variable Cost $34.00 Fixed Costs Manufacturing $82,500.00 Selling $42,000.00 Administrative $356,000.00 Total Fixed Cost $480,500.00 Selling Price Per Unit $65.00 Expected Sales(Units) 30,. If the cost and sales price remain the same, what is the project for the coming year? 2. What is the breakeven point in units for the coming year? 3. Jan has set the sales target for 35,000 ice cream makers which she think she can achieve by an additional fixed selling expense of $200,000 for advertising. All other cost remains as in requirement 1. what will be the operating profit if the additional $200,000 is spent on advertising and sales rise to 35,000 units? 4. What will be the new breakdown point if the additional $200,000 is spent on advertising? If the additional $200,000 is spent for advertising in the next year, what is the required sales level in the units to equal the current year's income at 30,000 units?

Paper For Above instruction

The analysis of costs and pricing strategies for an ice cream business illustrates how variable and fixed costs impact the financial outlook, breakeven point, and profit projections for the upcoming year. This case demonstrates the importance of understanding cost structures and the implications of strategic advertising expenditure on sales volume and profitability.

Initially, the project for the coming year can be evaluated by calculating the net income based on current sales propositions. With a selling price of $65 per unit and anticipated sales of 30,000 units, the total revenue amounts to $1,950,000 (65 x 30,000). The variable costs per unit are $34, including direct labor, materials, and overhead, totaling $1,020,000 for 30,000 units (34 x 30,000). Total fixed costs are $480,500, covering manufacturing, selling, and administrative expenses.

To determine the project's net income, subtract the total variable and fixed costs from total sales revenue: Net Income = Total Revenue - Total Variable Costs - Total Fixed Costs. Substituting the given values yields: $1,950,000 - $1,020,000 - $480,500 = $449,500. Thus, the project is expected to generate a net income of $449,500 for the upcoming year if current sales and costs persist.

The breakeven point in units can be calculated using the formula: Breakeven Units = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit). The contribution margin per unit is $31 (65 - 34). Therefore, BRE = 480,500 / 31 ≈ 15,500 units. The company needs to sell approximately 15,500 units to cover all fixed and variable costs, achieving zero profit at this point.

Jan's initiative to boost sales targets to 35,000 units involves additional advertising expenses of $200,000. This increase in fixed costs adapts the total fixed costs to $680,500 ($480,500 + $200,000). The new breakeven point becomes: 680,500 / 31 ≈ 21,968 units, indicating that the company must sell about 21,968 units to break even under the increased advertising spend.

To evaluate the operating profit with the targeted sales of 35,000 units and an additional advertisement budget, calculate total revenue (35,000 x $65) = $2,275,000, variable costs (35,000 x $34) = $1,190,000, and total fixed costs of $680,500. The operating profit is derived as: $2,275,000 - $1,190,000 - $680,500 = $404,500. This indicates a positive profit, demonstrating that increased sales volume can compensate for higher advertising costs, leading to growth in operating profit.

Furthermore, the new break-even point accounting for the additional advertising expense shifts to approximately 21,968 units, as calculated earlier. To determine the required sales units to match the current year's income at 30,000 units despite the increased advertising spend, employ the formula:

Required Sales Units = (Fixed Costs + Additional Advertising Expense + Target Income) / Contribution Margin per Unit. Plugging in the values: (480,500 + 200,000 + 449,500) / 31 ≈ 37,659 units. Consequently, the company must sell around 37,659 units to achieve the same net income as projected for 30,000 units in the current year's scenario, accounting for the increased fixed costs due to advertising investment.

In conclusion, strategic advertising expenditure influences not only the breakeven point and sales volume but also the overall profitability. Proper analysis of variable and fixed costs, along with careful planning of sales targets and advertising budgets, enables managerial decision-making that optimizes profits and sustains business growth in a competitive environment.

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