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Moore Inc., target profit , The dollar value of Morey's...

Managerial Accounting problems

Moore Inc. invented a secret process to double the growth rate of hatchery trout and manufactures a variety of products related to this process. Each product is independent of the others and is treated as a separate division. Product managers have a great deal of freedom to manage their divisions as they think best. Failure to produce target division income is dealt with severely; however, rewards for exceeding one's profit objectives are as one division manager described them, lavish.

The target profit for Morey for the coming year is $800,000 (20% return on the investment in the annual fixed costs of the division)
Moore selling price may not vary above the current selling price of $200 per gallon, but it may vary as much as 10% below $200 (i.e. $180). Other constraints on division operations are as follows:
Production cannot exceed sales, because Moore's corporate advertising stresses completely new additives each year, even though the "newness" of the models may be only cosmetic.

- Last year sales were 30,000 units at $200 per gallon
- Present capacity of Morey's manufacturing facility is 40,000gallons per year, but capacity can be increased to 80,000 gallons per year with an additional investment of $1 million per year in fixed costs.
- Present variable costs amount to $80 per unit, but if commitments are made for more than 60, 000 gallons, Morey's vendors are willing to offer raw material discounts amounting to $20 per gallon, beginning with 60.001.

a. The dollar value of Morey's current annual fixed costs.
b. Determine the number of gallons that Morey must sell @$200 per gallon to achieve the profit objective. Be sure to consider any relevant constraints. What if the selling price is $180?
c. Without prejudice to your previous answers, assume that Bryan Endreson decides to sell 40,000 gallons at $200 per gallon and 24,000 gallons at $180 per gallon. Prepare a pro forma income statement for Morey, showing where Endreson's decision will achieve Morey's profit objectives.

Solution Summary

Your tutorial is in Excel (attached). Click in cells to see computations. This shows a schedule for each requirement and adjustments for constraints.