Presented is the 2017 contribution income statement of Grafton Products. During

Question

Presented is the 2017 contribution income statement of Grafton Products.

During the coming year, Grafton expects an increase in variable manufacturing costs of $12 per unit and in fixed manufacturing costs of $39,000.

(a) If sales for 2018 remain at 13,000 units, what price should Grafton charge to obtain the same profit as last year? Round to the nearest cent.
$Answer

(b) Management believes that sales can be increased to 16,000 units if the selling price is lowered to $200. What would be the excepted profit (or loss) as a result of this action? Use a negative sign with your answer, if appropriate.  
Answer

(c) After considering the expected increases in costs, what sales volume is needed to earn a profit of $254,800 with a unit selling price of $200? Round to the nearest unit.
Answer

0.00 points out of 1.00

GRAFTON PRODUCTS
Contribution Income Statement
For Year Ended December 31, 2017 Sales (13,000 units) $ 2,925,000 Less variable costs Cost of goods sold $ 780,000 Selling and administrative 208,000 (988,000) Contribution margin 1,937,000 Less fixed costs Manufacturing overhead 780,000 Selling and administrative 315,000 (1,095,000) Net income $ 842,000

Explanation / Answer

Answer:-(a)In coming year variable manufacturing cost :-

=($780000/13000 units)+$12 per unit = $60 per unit+$12 per unit

=$72 per unit

=13000 units*$72 per unit =$936000

Fixed Manufacturing cost =$780000+$39000 =$819000

Let selling price be =X

Sales-Cost =Profit

13000X-$936000-$208000-$819000-315000 =$842000

13000X-$2278000=842000

X=$2278000+$842000/13000 = $240 per unit

Grafton should charge $240 per unit to obtain a desired profit of $842000 as last year.

b)-

The expected profit would be as a result of action $658000.

c)- Let selling units be =X

Sales-Cost =Profit

200X-$72X-$16X -$819000-315000 =$254800

112X-$1134000=254800

X=$1134000+$254800/112 = 12400 unit

The sales volume of 12400 units needed to earn a profit of $254800 witha unit selling price of $200 per unit.

Grafton Products Contribution Income Statements For the year ended December 31,2017 Particulars Amount $ Sales 16000 units*$200 per unit 3200000 Less:- Variable costs Cost of goods sold 16000 units*$72 per unit -1152000 Selling & Administrative $208000/13000 units*16000 units -256000 Contribution margin 1792000 Less:- Fixed costs Manufaturing overhead -819000 Selling & Administrative -315000 Net income 658000

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