Question

Problem #2: CVP Analysis Sharon McFarland has just earned a degree in management from a prestigious university in the United Kingdom. She has taken a position as assistant to the president at Johnson Engineering, which manufactures tungsten carbide drill bits for the gold mining industry. Johnson produces two types of bits: a X diameter and a 1" diameter model. The manufacturing takes place in three departments. Tip-fabricating makes the tungsten carbide drill tips out of powdered wolfram. The forging department slots the alloy steel rod and heat-treats it for strength. Finally, the assembly department attaches the tips to the steel rods in a high-temperature brazing process. Volume, pricing and cost data is provided below. 3/4 Inch 1 Inch total Sales (000's units) 275 200 475 Selling Price $55.00 $75.00 $30,125 Direct Material $15.00 $21.00 $8,325 Direct Labor $5.00 $10.00 $3,375 Manufacturing OH $17.00 $22.00 $9,075 Gross profit $37.00 $53.00 $20,775 Selling, General & Administrative** $7.00 $5.00 $2.925 Operating profit $11.00 $17.00 $6,425 . This included utilities, manufacturing management salaries, quality control, production planning, manufacturing engineering, accounting, property taxes, and other indirect support costs that could not be traced to the individual products. It was generally agreed that these costs did not vary over the volume ranges anticipated in the near future. - These are fixed costs.

Answer 1

А B C D E F G H 1 Price elasticity of demand= percentage change in quantity / percentage change in price 2 3 3/4 inch 1 inch 4 price reduction (%) -10.00%-15.00% 5 price elasticity of demand -2.20 -2.20 6 percentage change in quantity 22.00% 33.00% 7 8 3/4 inch 1 inch total 9 Sales (000's units) 335.50 266 601.50 10 Selling Price $49.50 $63.75 $33,564.75 11 Direct Material $15.00 $21.00 $10,618.50 12 Direct Labor $5.00 $10.00 $4,337.50 13 Manufacturing OH $9,075 14 Gross profit $9,533.75 15 Selling, General & Administrative! $2,925 16 Operating Profit $6,608.75 17

B с E F А D 1 Price elasticity of demand= percentage change in quantity / percentage change in price 2 3 3/4 inch 4 price reduction (%) -0.1 5 price elasticity of demand -2.2 6 percentage change in quantity =D4*D5 1 inch -0.15 -2.2 =E4*E5 7 3/4 inch |=275+275*D6) =55+(55*D4) 15 1 inch =200+(200*E6) =75+75*E4) 21 5 10 8 9 Sales (000's units) 10 Selling Price 11 Direct Material 12 Direct Labor 13 Manufacturing OH 14 Gross profit 15 Selling, General & Administrative 16 Operating Profit 17 total =D9+E9 I=(D10*D9) +(E10*E9) =(D11*D9) +(E11*E9) =(D12*D9)+(E12*E9) 9075 I=F10-F11+F12+F13) 2925 =F14-F15 18