Wilson is a wholesale distributor of widgets. The company services convenience stores, groceries and superstores like Wal-Mart. Small however steady growth has been achieved over the past few years while widget prices have been increasing. The company is expressing its plans for the coming fiscal year. Presented under are the data used to project the current years after tax net income of 264,960.
Average selling price: $9.60 per case
Average variable costs:
Widget production: $4.80 per case
Selling expense: $.96 per case
Total: $5.76 per case
Annual fixed costs: $1,056,000
Expected annual sales volume: 390,000 cases
Tax rate: 40%
Manufacturers of widgets have announced that they will increase prices of their products on average 15% in the coming year due to increases in raw materials and labor costs. All other variable costs change 15% as well. Wilson expects all other costs will remain at the same rates or levels as the current year. These changes have not been entered into the information presented above.
Answer the following:
What is Wilson's break-even point in cases of widgets for the current year?
What selling price per case should Wilson charge to cover the 15% increase in variable production costs (the 15% increase includes all variable costs associated with this problem) and still maintain the current contribution margin percentage?
What is the number of units that Wilson must achieve in the coming year to maintain the same net income after taxes as projected for the current year if the selling price of widgets remains at $9.60 per case and the variable production costs of widgets increase 15%?
2. Explain how capacity utilization affects product mix and profitability.
3. Complete Problem 12.1 on page 238 of the course text (solution is on page 511). Next work the problem again using the following variables: Average salary is 85,000£; national insurance is 12%; pension contribution is 3%; there are two weeks of vacation; 5 days of holidays; and chargeable hours are 40 per week with administrative time taken from family time. The rest of the assumptions are as listed on problem 12.1. Calculate the hourly rate to cover the cost of each financial adviser.