Question

The Central Valley Company is a manufacturing firm that produces and sells a single product. The company's revenues and expenses for the last four months are given below. Central Valley Company Comparative Income Statement March April May June Sales in units 6,200 5,700 7,050 8,400 Sales revenue $762,600 $701,100 $867,150 $1,033,200 Less: Cost of goods sold 402,800 378,594 450,918 526,932 Gross margin $359,800 $322,506 $416,232 $506,268 Less: Operating Expenses Shipping expense $63,900 $53,600 $67,400 $65,000 Advertising expense 88,000 88,000 88,000 88,000 Salaries and commissions 164,400 137,000 167,500 171,500 Insurance expense 15,000 15,000 15,000 15,000 Amortization expense 48,000 48,000 48,000 48,000 Total operating expenses $379,300 $341,600 $385,900 $387,500 Net income $(19,500) $(19,094) $30,332 $118,768 Required: 1. Management is concerned about the losses experienced during the spring and would like to know more about the cost behavior. Develop a cost equation for each of the costs. (Do not round intermediate calculations. Round "Per Unit" answers to 2 decimal places.) 2. Assume that fixed costs are incurred uniformly throughout the year. Compute the annual break-even sales, and the profit if 79,000 units are sold during the year. (Round "Break-even sales" answer to nearest whole number.) 3. Calculate the change in profit if the selling price were reduced by $10.5 each and annual sales were to increase by 7,400 units. 4. Determine the change in profit if the company were to increase advertising by $112,000 and if this were to increase sales by 7,400 units.

The Central Valley Company is a manufacturing firm that produces and sells a single product. The company's revenues and expenses for the last four months are given below.

Central Valley Company Comparative Income Statement

March April May June
Sales in units 6,200 5,700 7,050 8,400
Sales revenue $762,600 $701,100 $867,150 $1,033,200
Less: Cost of goods sold 402,800 378,594 450,918 526,932
Gross margin $359,800 $322,506 $416,232 $506,268
Less: Operating Expenses
Shipping expense $63,900 $53,600 $67,400 $65,000
Advertising expense 88,000 88,000 88,000 88,000
Salaries and commissions 164,400 137,000 167,500 171,500
Insurance expense 15,000 15,000 15,000 15,000
Amortization expense 48,000 48,000 48,000 48,000
Total operating expenses $379,300 $341,600 $385,900 $387,500
Net income $(19,500) $(19,094) $30,332 $118,768

Required:

1. Management is concerned about the losses experienced during the spring and would like to know more about the cost behavior. Develop a cost equation for each of the costs. (Do not round intermediate calculations. Round "Per Unit" answers to 2 decimal places.)

2. Assume that fixed costs are incurred uniformly throughout the year. Compute the annual break-even sales, and the profit if 79,000 units are sold during the year. (Round "Break-even sales" answer to nearest whole number.)

3. Calculate the change in profit if the selling price were reduced by $10.5 each and annual sales were to increase by 7,400 units.

4. Determine the change in profit if the company were to increase advertising by $112,000 and if this were to increase sales by 7,400 units.

Added by Elena A.