question 3 Due to the sluggish economy, the Wheels Company has experienced some difficulty in selling its bicycles. The
Posted: Tue Apr 26, 2022 10:30 am
question 3
Due to the sluggish economy, the Wheels Company has experienced
some difficulty in selling its bicycles. The following data relate
to the current year
Sales 9,000 units x $100@ $ 900,000
less: variable costs 9,000 units x $60@ $ 540,000
contribution margin $ 360,000
less :fixed costs $ 400,000
Net loss $ 40,000
Requirements
a) Compute Wheels' breakeven point in both units and
dollars.
b) The manager believes that a $40,000 increase in advertising
would result in a $120,000 increase in annual sales. If the manager
is right, what will be the effect on the company's net income or
loss?
c) Refer to the original data. The vice-president in charge of
sales is certain that a 10% reduction in price in combination with
a $30,000 increase in advertising will cause unit sales to increase
by 50%. What effect would this strategy have on net income
(loss)?
d) Refer to the original data. In the following year, Wheels
saved $5 of total variable costs per bicycle by buying parts from a
different manufacturer. However, Wheels' rent, and insurance
increased by $5,600. The store sold 11,000 bikes. What was its net
income (loss) for the year?
Due to the sluggish economy, the Wheels Company has experienced
some difficulty in selling its bicycles. The following data relate
to the current year
Sales 9,000 units x $100@ $ 900,000
less: variable costs 9,000 units x $60@ $ 540,000
contribution margin $ 360,000
less :fixed costs $ 400,000
Net loss $ 40,000
Requirements
a) Compute Wheels' breakeven point in both units and
dollars.
b) The manager believes that a $40,000 increase in advertising
would result in a $120,000 increase in annual sales. If the manager
is right, what will be the effect on the company's net income or
loss?
c) Refer to the original data. The vice-president in charge of
sales is certain that a 10% reduction in price in combination with
a $30,000 increase in advertising will cause unit sales to increase
by 50%. What effect would this strategy have on net income
(loss)?
d) Refer to the original data. In the following year, Wheels
saved $5 of total variable costs per bicycle by buying parts from a
different manufacturer. However, Wheels' rent, and insurance
increased by $5,600. The store sold 11,000 bikes. What was its net
income (loss) for the year?