# Answered Essay: Recall Molly's information 34,000 37.100 Proft (loss) 3,1002 Revenue Expense Management r

Recall Molly’s information 34,000 37.100 Proft (loss) 3,1002 Revenue Expense Management responded with the following information . Costs have been matched to revenue to determine what costs should appear as expenses. . The costs of goods remaining in inventory are not included in expenses. . There are no fixed manufacturing costs. Cost of sales is 40% of revenue. . \$8,500 of the selling and administrative expenses are variable. . Costs and selling prices are expected to remain stable for at least the next two years. Based on this information you created the following contribution margin format income statement and used it to analyze several alternatives for management. % of Revenue Revenue Variable COGS Variable S&A 34,000 13,600 8,500 40.00% 25.00%

1.

 Details (A) Sales Mix (B) Sale price(\$) (C) Total Sales(\$) ( B x C) Regular cupcakes 80% 3 2.4 Deluxe cupcakes 20% 5 1.0 Total 3.4 Revenue (given) 34,000 Total No. of cupcakes sold(34,000/3.4) 10,000
 No.of regular cupcakes sold 80% of 10,000 = 8,000 No.of deluxe cupcakes sold 20% of 10,000 = 2,000

2.

 Details No. of units Contribution margin per unit (\$) Total contribution Margin (\$) Regular cupcakes 8,000 0.95 7,600 Deluxe cupcakes 2,000 2.15 4,300 Total 10,000 11,900 Weighted average \$1.19 (\$11,900/10,000)

3.

The new sales mix will be

Deluxe 48% = 48% of 10,000 = 4,800

Balance will be regular . i.e., Regular = 10,000 – 4,800 = 5,200

 Details No. of units Contribution margin per unit (\$) Total contribution Margin (\$) Regular cupcakes 5,200 0.95 4,940 Deluxe cupcakes 4,800 2.15 10,320 Total 10,000 15,260 Weighted average \$1.53 (\$15,260/10,000)

4.

Total revenue will be as follws:

 Details No. of units Per unit Total Regular 5,200 \$3.00 \$15,600 Deluxe 4,800 \$5.00 \$24,000 Total Revenue \$39,600
 Details percentage of sales Value (\$) Revenue 39,600 Variable COGS 40% 15,840 Variable S&A 25% 9,900 Total Variable cost 25,740 Contribution Margin 13,860 Fixed Cost 15,000 Profit -1,140

5. As Molly’s sales commission does not differentiate between regular and deluxe cupcakes , the sales staff will not be encouraged to make effort to sell high margin cupcakes.

6.

 Details Value Fixed cost (A) \$15,000 After tax profit Profit (B) \$3,000 Tax rate (C) 30% Profit before tax (D) (B/1-C) \$4,286 Total contribution to be generated (E) (A+D) 19,286 Weighted average contrubiton per unit (F) \$1.53 No. of units to be sold (E / F) 12,605 Deluxe cupcakes (48%) 6,050
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