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    Budgeted profit, what if analysis

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    Monterio Mfg. Co. manufactures and sells folding umbrellas. 2006 Income Statement is:
    Sales (200000 units) $1000000
    Cost of goods sold $600000 Gross Margin=$400,000
    Selling expenses $150000
    Admin. expenses $100000 Net Profit (before income taxes) $150,000
    Monteiro's budget changes for 2007 are:
    30% increase in number of units sold
    20% increase in material cost per unit
    15% increase in direct labor cost per unit
    10% increase in variable indirect cost per unit
    5% increase in indirect capacity-related costs
    8% increase in selling expenses arising solely from increased volume
    6% increase in admin. expenses
    No change to admin. expenses caused solely by increase sales volume (considered immaterial).
    Any change in inventory valuation can be ignored. Finished product during 2006 for materials, direct labor, and mfg. support respectively was in the ratio of 3:2:1. In 2006, $40,000 of manufacturing support was for fixed costs. No changes in production methods or credit policies were contemplated for 2007.

    a) Compute unit sales price at which Monteiro must sell its umbrellas in 2007 in order to earn a budgeted profit of $200,000.
    b) Monteiro's sales mgr. is unhappy about increasing selling price. How many units must be sold at old price to earn $200,000 profit? Compute number of units which must be sold at old price to earn $200,000.
    c) 1 company director wants to know annual profit if selling price determined in a) is adopted but the increase in sales volume is only 10%. Compute budget profit in this case.

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    Solution Summary

    Budgeted profits and what if analysis's are examined.

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