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		5,600			5,100			6,150			7,200
Sales revenue	$	728,000		$	663,000		$	799,500		$	936,000
Less: Cost of goods sold		386,900			358,020			415,740			477,360
Gross margin	$	341,100		$	304,980		$	383,760		$	458,640
Less: Operating Expenses
Shipping expense	$	62,700		$	54,800		$	66,200		$	68,000
Advertising expense		79,000			79,000			79,000			79,000
Salaries and commissions		162,600			140,000			164,500			177,500
Insurance expense		12,000			12,000			12,000			12,000
Amortization expense		45,000			45,000			45,000			45,000
Total operating expenses	$	361,300		$	330,800		$	366,700		$	381,500
Net income	$	(20,200	)	$	(25,820	)	$	17,060		$	77,140

1.

Management is concerned about the losses experienced during the spring and would like to know more about the cost behaviour. Develop a cost equation for each of the costs. Cost of goods sold =________ +________per unit shipping =________ +________per unit salaries&commission=________ +________per unit

2.	Assume that fixed costs are incurred uniformly throughout the year. Compute the annual break-even sales, and the profit if 72,000 units are sold during the year break-even sales _________units annual profit(72000 units) ____________

3.	Calculate the change in profit if the selling price were reduced by $7.0 each and annual sales were to increase by 6,200 units. (decrease in loss/decrease in profit/increase in loss/increase in profit) $_________

4.	Determine the change in profit if the company were to increase advertising by $106,000 and if this were to increase sales by 6,200 units. (incremental loss/incremental profit) $________

Answer 1