Cincinnati Tool Company (CTC) manufactures a line of electric garden tools that

Question

Cincinnati Tool Company (CTC) manufactures a line of electric garden tools that are sold in general hardware stores. The company’s controller, Will Fulton, has just received the sales forecast for the coming year for CTC’s three products: hedge clippers, weeders, and leaf blowers. CTC has experienced considerable variations in sales volumes and variable costs over the past two years, and Fulton believes the forecast should be carefully evaluated from a cost-volume-profit viewpoint. The preliminary budget information for 20x2 follows:

For 20x2, CTC’s fixed manufacturing overhead is budgeted at $2,000,000, and the company’s fixed selling and administrative expenses are forecasted to be $600,000. CTC has a tax rate of 40 percent.

Problem 7-49 Part 1

Required:

Determine CTC’s budgeted net income for 20x2.

Weeders Hedge Clippers Leaf Blowers Unit sales 50,000 50,000 100,000 Unit selling price $ 28 $ 36 $ 48 Variable manufacturing cost per unit 13 12 25 Variable selling cost per unit 5 4 6

Explanation / Answer

Weeders Hedge Clippers Leaf Blowers Total A Units 50000 50000 100000 B Sales Price 28.00 36.00 48.00 C Manufacturing Cost 13.00 12.00 25.00 D Selling Cost 5.00 4.00 6.00 Weeders Hedge Clippers Leaf Blowers Total A*B Sales Value 1400000 1800000 4800000 8000000 Less: Variable Costs A*C Manufacturing Cost 650000 600000 2500000 3750000 A*D Selling Cost 250000 200000 600000 1050000 Contribution Margin 500000 1000000 1700000 3200000 Less: Fixed Costs: Manufacturing OH 2000000 S&A Expense 600000 Income Before Tax 600000 Less: Taxes @ 40% 240000 Income After Tax 360000

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