Reference no: EM131878925

Fancy Millwork has a factory that produces custom kitchen cabinets. It has multiple product lines. Materials and labor for the cabinets are determined by each job. To simplify the assignment, we will assume the following average costs. The company estimates that it will have 32,000 direct labor hours in total for the kitchen cabinets. The materials include $2,000 for the wood and other materials on a per job basis. It requires 40 hours of labor on average for a custom kitchen. The hourly rate is $10. The sales price will be set at a markup of 80%. It assumes 800 units are sold on average per year. A breakdown of estimated yearly costs related to the kitchen cabinets follows. Please note that the amounts are per year unless identified otherwise: Salaries- office & administrative $ 400,000 Salaries for factory supervisors and janitors $ 200,000 Office Rent $ 90,000 Factory Rent $ 80,000 Office Utilities and Misc office expenses(based on units sold) $ 20,000 SalesTravel(based on units sold) $ 24,000 Insurance - office $ 14,000 Depreciation - office equipment $ 45,000 Depreciation for factory equipment $ 70,000 Advertising $ 15,000 Sales commissions(based on units sold) $ 50,000 Factory Property taxes $ 10,000 Maintenance for factory equipment $ 80,000 If the following changes were to be made to a CVP income statement: direct materials costs decrease by 10%; fixed costs increase by 30% and sales price would increase by 5%. Assume you are selling 800 units. Should the company consider these changes? Why or why not? This question is not just based on the new net income. Please review the full income statement for changes. What if the sales volume changes? Does this change your answer? I would recommend using volumes higher and lower to see how the changes impact your answer. Include any CVP income statements that are needed to support your answer. Discuss real examples of cost increases for fixed costs (at least 2) and decreases for direct materials (at least 2) that could be implemented for this business. Can the company increase price? What other areas might be impacted due to the price increase? You are the CFO of this business what is important to consider? Give 2 industry specific details that can impact this discussion.