Hall Company had sales in 2014 of $1,775,200 on 63,400 units. Variable costs tot
ID: 2465557 • Letter: H
Question
Hall Company had sales in 2014 of $1,775,200 on 63,400 units. Variable costs totaled $760,800, and fixed costs totaled $409,300.
A new raw material is available that will decrease the variable costs per unit by 28% (or $3.36). However, to process the new raw material, fixed operating costs will increase by $156,400. Management feels that one-half of the decline in the variable costs per unit should be passed on to customers in the form of a sales price reduction. The marketing department expects that this sales price reduction will result in a 5% increase in the number of units sold.
HALL COMPANY
CVP Income Statement
For the Year Ended December 31, 2014
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HALLCOMPANY
CVP Income Statement
For the Year Ended December 31, 2014
Hall Company had sales in 2014 of $1,775,200 on 63,400 units. Variable costs totaled $760,800, and fixed costs totaled $409,300.
A new raw material is available that will decrease the variable costs per unit by 28% (or $3.36). However, to process the new raw material, fixed operating costs will increase by $156,400. Management feels that one-half of the decline in the variable costs per unit should be passed on to customers in the form of a sales price reduction. The marketing department expects that this sales price reduction will result in a 5% increase in the number of units sold.
Explanation / Answer
CVP Income statements for the Year Ended December,2014 Units 63400 66570 Pariculars Before Proposal After Proposal Per Unit before Proposal Per Unit After Proposal Sales 1775200 1603005.6 28 24.08 Less:Variable Cost 760800 547776 12 8.228571429 Contribution 1014400 1055229.6 16 15.85142857 Less:Fixed Cost 409300 565700 6.455835962 8.497821842 Operating Profit 605100 489529.6 9.544164038 7.35360673
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