Explore BrainMass
Share

Claire's Antiques: Cost volume profit problems

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

What is the solution to the following: Claire's Antiques has fixed cost of $75,000 per month. Each antique has the following identifiable sales price, variable material costs, and fixed monthly costs, respectively.

Sales Price Variable Material Costs Fixed Monthly Costs
Clocks $700 $320 20%
Dinette Sets $3,700 $1,280 35%
Bedroom Suites $6,500 $1,840 45%

When Claire's Antiques sells antiques through a distributor they pay a sales commission of 10% of the sales price. It sells 70% of each antique through its distributors. Assume that the fixed costs are allocated 20%, 35%, and 45% to the Clocks, Dinette Sets, and Bedroom Suites, respectively. Currently, the allocations are based on estimated design time for each antique.

Calculate the contribution margin for each antique. For purposes of this computation, ignore the sales commission as one of the variable cost.
Calculate the MONTHLY break-even units for each antique, once again, ignoring the variable cost for the sales commission.
This year, Claire's Antiques expects to sell 620 units of clocks, 180 units of dinette sets, and 110 units of bedroom suites, (70% through distributors as expected). Prepare a contribution margin income statement (with sales, each type of variable expense (material and sales commission), and fixed expenses) for Claire's Antiques based upon these sales volumes.
The distributors are now requesting a 15% commission on all antiques. Claire's Antiques does not want to change the selling prices of its antiques in order to absorb this increase. Compute by how much will it have to reduce other costs to make up for this request? What other counter-proposals could be suggested?
Claire's Antiques is facing fierce competition from a new company, and management decides to lower the selling price of the dinette sets by 10%. Also, they decide to acquire additional advertising at a cost of $1,000 per month. This cost will be allocated only to the dinette sets. Recalculate their Break Even (for the dinette sets only) point given the new information. Ignore sales commissions completely.

Claire's Antiques was ready to submit a sealed quote (bid) for a new customer who desired to purchase 150 clocks during the upcoming year. The sealed quote was for 150 clocks at $650 each, for a total selling price of $97,500. Claire's Antiques gained knowledge that its competitor was also placing a bid with this client. The competitors bid became known to have been for $600 per clock. If Claire's Antiques loses this bid, its clock sales will decline, resulting in lower profits, and possibly the lay off of workers will take place. What possibilities would you suggest for Claire's Antiques? And what should the company do and why?

© BrainMass Inc. brainmass.com October 24, 2018, 7:58 pm ad1c9bdddf
https://brainmass.com/business/financial-accounting-bookkeeping/84410

Solution Preview

Dear student,
Solution to your above posted problem is provided in a separate Excel file attached herewith.The step by step statements given in the solution are as follows.
1 Marginal cost statement.
2 Monthly Break even Point
3 ...

Solution Summary

Solution to your above posted problem is provided in a separate Excel file attached herewith.The step by step statements given in the solution are as follows: 1 Marginal cost statement. 2 Monthly Break even Point 3 Contribution Margin Income statement for the year ( with provision of 10% Sales commission), 4(a) Contribution Margin Income statement for the year(15%sales commission) with the same cost structure, (b) Contribution Margin Income statement for the year(15%sales commission) with the reduced variable material cost for maintaining same Net income as in Statement 3 above, 5 Marginal cost statement and Break even point for Dinette Sets, 6 Expected Profit on Clock sale to New customer, and 7 No of Extra units of alternative products to be sold to maintain desired profit.

$2.19
See Also This Related BrainMass Solution

Business Management Need References for Scenario Analysis

Scenario:
Operations deals with how the company is performing. Operations may be refined into different manufacturing processes such as design, material acquisition, assembly, testing and so on.

A VP of operations has asked you to make a presentation at the weekly status meeting on how to improve the efficiency and effectiveness of each manufacturing sub processes individually and as a whole.

She states that to drive performance, you will need to examine accounting-based data on material, labor, and overhead costs. This type of information is not disclosed in financial reports used for lenders and owners. Rather product cost information relates to how the operation is now doing and moving forward in the future. External reports are more backward-looking about how an entity DID operate. While there will be a strong relation between operation profits and profit per the external financial statements, the way that profitability is measured can vary greatly especially since profits on an external financial report are defined according to strict definitions set by the accounting regulators. Nevertheless, the VP of operations finds the relation between operation profits and profit per the external financial statements most useful. You are to present your findings and recommendation at this meeting.

Make sure that you:

You should decide upon a measurement for profitability (such as net income, sales growth, and etc) for you as the Manager. Then explain how Claire's Antiques can measure your definition of profitability, how do you compute your profitability, and indicate why Claire's Antiques can achieve this measurement. Also, how will your measurement help to motivate Claire's Antiques to reach its goals of growing into other regions?

See attached file for full problem description.

View Full Posting Details