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

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Recall Mollys 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%

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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%

Expert Answer

 

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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