Assignment

You are a manager of Table Top Limited, a manufacturer of small tables .

You have been instructed to prepare a budget for the next year's operations with the following forecast:

The sales volume is forecast to increase by 50% if the sales price is reduced by 25%.

The direct wages rates is expected to increase by 10%

Material prices will remain unchanged, except that if production is increased by at least 20% above the current year output level, a 5% bulk purchase discount on all materials purchased will be obtained.

Variable production and distribution expenses will increase by an average of 10% next year

Fixed costs will rise by an average of 25%

Variable sales cost refers to sales commission which is in proportion of sales revenue turnover

Details of the company's operations for the current year are as follows:

Sales ( 10,000 units) $ 700,000

Costs

Material Direct 88,000

Wages: Direct 144,000

Indirect 33,000

Production expenses: Variable 44,000

Fixed 53,000

Administration expenses: Fixed 42,000

Sales expenses: Variable 35,000

Fixed 37,000

Distribution expenses: Variable 31,000

Fixed 18,000

Total Costs 525,000

Profit 175,000

Indirect wages are regarded as a fixed cost.

Question: Prepare a profit forecast for the next year in contribution margin statement format, on the basis of the sales forecast and cost estimates.