Compute the contribution margin per unit

Assignment Help Accounting Basics
Reference no: EM132109531

Problem - CVP Analysis; Strategy; Uncertainty Computer Graphics (CG) is a small manufacturer of electronic products for computers with graphics capabilities. The company has succeeded by being very innovative in product design. As a spin-off of a large electronics manufacturer (ElecTech), CG management has extensive experience in both marketing and manufacturing in the electronics industry. A long list of equity investors is betting that the firm will really take off because of the growth of specialized graphic software and the increased demand for computers with enhanced graphics capability. A number of market analysts say, however, that the market for the firm's products is somewhat risky, as it is for many high-tech startups, because of the number of new competitors entering the market and CG's unproven technology.

CG's main product is a circuit board (CB3668) used in computers with enhanced graphics capabilities. Prices vary depending on the terms of sale and the size of the purchase; the average price for the CB3668 is $100. If the firm is able to take off, it might be able to raise prices, but it also might have to reduce the price because of increased competition. The firm expects to sell 150,000 units in the coming year, and sales are expected to increase in the following years. The future for CG looks very bright indeed, but the company is new and has not developed a strong financial base. Cash flow management is a critical feature of the firm's financial management, and top management must watch cash flow numbers closely.

At present, CG is manufacturing the CB3668 in a plant leased from ElecTech using some equipment purchased from ElecTech. CG manufactures about 70% of the parts in this circuit board.

CG management is considering a significant reengineering project to significantly change the plant and manufacturing process. The project's objective is to increase the number of purchased parts (to about 55%) and to reduce the complexity of the manufacturing process. This would also permit CG to remove some leased equipment and to sell some of the most expensive equipment in the plant.

The per-unit manufacturing costs for 150,000 units of CB3668 follow:


Current Manufacturing Costs

Proposed Manufacturing Costs

Materials and purchased parts

$6.00

$15.00

Direct labor

12.50

13.75

Variable overhead

25.00

30.00

Fixed overhead

40.00

20.00

Manufacturing information for CB3668:



 Number of setups

3,000

2,300

 Batch size

50

50

 Cost per setup

$300

$300

 Machine hours

88,000

55,000

General, selling, and administrative costs are $10 variable cost per unit and $1,250,000 fixed; these costs are not expected to differ for either the current or the proposed manufacturing plan

Required -

Compute the contribution margin per unit and the breakeven point in units for CB3668, both before and after the proposed reengineering project. Assume all setup costs are included in fixed overhead.

Determine the number of sales units at which CG would be indifferent as to the current manufacturing plan or the proposed plan.

Use Goal Seek in Excel to confirm your answer to requirement 2.

Explain briefly (a) what CG's strategy is, (b) what you think it should be, and (c) why.

Should CG undertake the proposed reengineering plan? Using a spreadsheet, support your answer with sensitivity analysis and a discussion of short-term and long-term considerations.

Reference no: EM132109531

Questions Cloud

Calculate the hourly depreciation cost for this machine : Calculate the hourly depreciation cost for this machine.
About the chaos study definition of successful project : What do you think about the CHAOS study’s definition of a successful project? Do you think there are better definitions of success besides meeting scope, time,
Develop a filing system : NIT6130 Introduction to Research - Literature Review - conducting an literature review in a research project. Students will experience all three phases
Suggestions for repairing the dam : Ms. Reynolds (U.S.): Have you had a chance to look at our suggestions for repairing the dam?
Compute the contribution margin per unit : Compute the contribution margin per unit and the breakeven point in units for CB3668, both before and after the proposed reengineering project
Importance in the negotiation process : Please include an example to support your explanation. Your example could be one that you observed or experienced during your life or an original idea.
Projects fail because they cannot survive in ecosystems : Unbalanced ecosystems: Projects fail because they cannot survive in their ecosystems. Projects cannot be executed in unbalanced ecosystems.
Define marketing and sales in detail : Define "marketing" and "sales" and explain how they are different from one another. How are they dependent upon one another?
What experience-interest do you have in healthcare system : Focus your introduction on areas you feel are relevant to your work in the course, but give your introduction a personal touch as well.

Reviews

Write a Review

Accounting Basics Questions & Answers

  How much control does fed have over this longer real rate

Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest.   How much control does the Fed have over this longer real rate?

  Coures:- fundamental accounting principles

Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.

  Accounting problems

Accounting problems,  Draw a detailed timeline incorporating the dividends, calculate    the exact Payback Period  b)   the discounted Payback Period. the IRR,  the NPV, the Profitability Index.

  Write a report on internal controls

Write a report on Internal Controls

  Prepare the bank reconciliation for company

Prepare the bank reconciliation for company.

  Cost-benefit analysis

Create a cost-benefit analysis to evaluate the project

  Theory of interest

Theory of Interest: NPV, IRR, Nominal and Real, Amortization, Sinking Fund, TWRR, DWRR

  Liquidity and profitability

Distinguish between liquidity and profitability.

  What is the expected risk premium on the portfolio

Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.

  Simple interest and compound interest

Simple Interest, Compound interest, discount rate, force of interest, AV, PV

  Capm and venture capital

CAPM and Venture Capital

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd