Reference no: EM133041605

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.

Valley Company Comparative Income Statement
	March	April	May	June
Sales in units	6,400	5,900	7,350	8,800
Sales revenue	$768,000	$708,000	$882,000	$1,056,000
Less: Cost of goods sold	408,100	382,320	458,640	538,560
Gross margin	$359,900	$325,680	$423,360	$517,440
Less: Operating expenses
Shipping expense	$64,300	$53,200	$67,800	$64,000
Advertising expense	91,000	91,000	91,000	91,000
Salaries and commissions	165,000	136,000	168,500	166,500
Insurance expense	16,000	16,000	16,000	16,000
Amortization expense	49,000	49,000	49,000	49,000
Total operating expenses	$385,300	$345,200	$392,300	$386,500
Net income	$(25,400)	$ (19,520)	$31,060	$130,940

Required -

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.

2. Assume that fixed costs are incurred uniformly throughout the year. Compute the annual break-even sales, and the profit if 82,000 units are sold during the year.

3. Calculate the change in profit if the selling price were reduced by $11.50 each and annual sales were to increase by 7,800 units.

4. Determine the change in profit if the company were to increase advertising by $114,000 and if this were to increase sales by 7,800 units.