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    Allen Frame: Cost Concepts for Higher Production Levels

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    In 2005 AFC, produced 23,000 and provided 1,000 custom framing services and sold 20,000 frames. Holding the sales and framing service constant, supose the president instructed manufacaturing to produce at levels of 26,000 and 28,000. I have attached the excel spread that I have completed so far.

    Write 2-3 Paragraphs explanation as to why the president would want to do this and how this might create a future problem for AFC.

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    Solution Preview

    I can write those paragraphs you want, but first a couple of comments about your spreadsheets:

    1. I expected to see a little chart projecting the dollar amount of contribution margin at 3 different sales levels: 23K, 26K and 28K. It seems like it should show sales, cost of sales based on your 11.91 unit price, gross margin, then overhead (a mini forecasted income statement). A president is looking to more profits, of course, but your spreadsheets mostly address the past, not the future.

    2. I don't understand why fixed costs changed on your contribution income statement. There may be a good reason that I can't see. The format of your income statement is ...

    Solution Summary

    The solution includes four comments for additional clarity about the prepared spread sheet. The memo to the President is also included.