Reference no: EM13141772
Timberland produces treated wood chips as a by-product of pulp manufacturing. The Company purchases materials (chemicals, etc.) for $32 per ton of chips. Variable costs, including labor, costs $10 per ton. The chips can be sold for $70 per ton. Fixed costs, all unavoidable, equals $84,000. Timberland’s incremental tax rate is 30%.
Required:
1. Prepare a budgeted income statement assuming that Timberland sells 2,500 tons.
2. What is the contribution margin per ton?
3. Calculate breakeven.
4. Assume the Company requires income of $14,000, how much in dollars does Timberland have to sale to achieve $14,000 profit?
5. Now assume the Company wishes to earn $35,711 after tax. What is the target operating income?
6. Next assume the Company now anticipates selling 3,200 tons of chips. Management believes that if $10,000 is invested in advertising the sale of chips will increase to 4,000 tons. Would you recommend the advertising?
7 As an alternative to advertising the factory foreman suggests that if the Company reduces the selling price to $61 per ton sales can be increased to 4,500 tons. Do you recommend the reduction in sales price?
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