70.2K

Verified Solution

Link Copied!

thank you!

2) Assume, due to the significant success of the drum sets, TrucBeat has obtained a contract to provide drum sets to a national merchandising chain for a 5% lower sales price. Even though each unit will sell for less, the contract is also expected to significantly increase TrueBeat's sales volumes over the next 3 years. Current operations have a relevant range of 500 to 1.800 drum sets. Because of the new contract, TrucBeat's anticipates selling 3,000 units in Year 2, 5,000 units in Year 3 and 6,000 units in Year 4 and the national merchandising chain will be their only customer. These projected sales volumes are outside of TrueBeat's current cost structures relevant range of production, so the company needs to make the changes to its operations (and cost structure) to accommodate the increased sales volume. The company believes they can increase their relevant range of 500 to 1,800 units to 4,000 to 8,000 units by making the following changes. Project 1: Page 2 of 2 The company will have to purchase additional production equipment that will increase their machinery depreciation expense (Fixed overhead). The new equipment will allow TrueBeat to produce up to 8,000 drum sets a year. TrueBeat anticipates running a second shift for production. The company will need to pay shift premium to assembly workers such that the average Direct labor costs will increase. (Direct Labor). Additionally, additional production supervisors will be hired increasing fixed overhead. TrueBeat has renegotiated the factory maintenance services contract. This new contract reduces the fixed fee (fixed overhead) but adds a variable component (increasing variable overhead). TrueBeat will also need to rent warehouse facility to store raw material and finished goods inventory. This will increase fixed overhead and fixed selling and administrative costs Because the company plans to increase its sales staff. TrueBeat will revised its pay structure for sales staff. Rather than paying their sales staff commission only. (variable S&A) TrueBeat will now pay sales staff a reduced commission rate but also pay a flat salary amount (fixed S&A). All other costs are considered consistent and within relevant range for production of 4,000 to 8,000 units. a) Use the information provided above to adjust amounts from the table in 1). Include the adjusted amounts in the table below. Use the directions below under (*#) references to guide you. Remember to use 2 decimals for "per unit" values except for sales price.a) Use the information provided above to adjust amounts from the table in 1). Include the adjusted amounts in the table below. Use the directions below under (*#) references to guide you. Remember to use 2 decimals for "per unit" values except for sales price. TrueBeat - Revised Cost Structure (relevant range 4,000 to 8,000 units) Average Cost per Unit Total Helpful Hints Dollars References (* *) Sales price round to whole dollar $ (1) Sales price x 95% (whole $s) Direct materials (2) Same as above Direct labor (3) DL above + $19 Variable overhead (4) 50% x DM ca co CA CA CO Variable selling & admin (5) VS&A above x 50% expense Total variable costs per unit Add cost rows above Fixed overhead (6) FOH above x 300% Fixed selling & admin expense (7) FS&A above + 250,000 (*#) References (1) Decrease sales price by 5% (95% of original sales price) (rounded to nearest whole dollar) (2) Direct Material will be unchanged from table in 1. (3) Direct Labor per unit will be increased by $18 per unit. Add $18 to the DL from table in 1. (4) Variable Overhead per unit will be equal to 50% of the Direct Material. DM from (1) x 50% (5) Variable Selling and Administrative will be reduced by half. VS&A from table in 1 x 50% (6) Fixed overhead will increase by 300%. FOH from table in 1 x 300%. (7) Fixed Selling and Administrative will increase by $250,000. FS&A from table in 1 + 50,000. Project 1: Page 3 of 2 b) What is Contribution Margin per unit, CMunit, under TrucBeats revised cost structure? c) Use the summarized cost structure from the table in 2 and complete the CVP Profit formula below: NOI = Q Note: This Profit Formula is NOT addressed in the textbook. Refer to the last & questions of VW1.I and various Lecture Videos for Instructor's (Teri's) explanation. i) Include the CMunit amount in the first space of the formula above (highlighted yellow). i Add the fixed manufacturing overhead and the fixed selling and administrative expenses together. Include the total fixed costs in the second space of the formula above. (highlighted green)Note: This is your CHECK POINT. Email or text a photo or PDF to Teri (instructor) and she will verify your accuracy of your work up to this point before you continue with the project. d) Use the CVP profit formula to calculate the following: i) If TrueBeat company produced and sold 2,275, what would their Net Operating Income be? ii) If TrueBeat Company produced and sold 3.150 drum sets. what would their Net Operating Income be? iii) If TrueBeat Company wanted to make Net Operating Income of $50,000, how many units would they need to produce and sell?{The faiiewing infomaiian applies to the questions displayed beion-zj Listed here are the total costs associated with the production of1,000 drum sets manufactured by TrueBeat. The drum sets sell for $515 each. Costa 1 . Plastic for casing$1? , 000 2 . Wages of assembly workers$86,000 3 . Property taxes on. factory$5 ,000 4 . Accounting staff salaries$31 , 000 5 . Drum stands (1 ,000 stands purchased]$36, 000 6 . Rent cost of equipment for sales staff$36, 000 'i' . Upper management ealariee$ l 95 , 0 0 0 Q . Annual flat fee for factory maintenance service$19, 000 9. Sales emissions$21 per unit 1 U . Machinery depreciation .- etraight-lina340, 000

Answer & Explanation Solved by verified expert

See Answer