Prepare flexible budget formulas for the cost items listed

Assignment Help Financial Accounting

Reference no: EM13938756

KICKER SPEAKERS, BEFORE-THE-FACT FLEXIBLE BUDGETING, FLEXIBLE BUDGETING FOR THE NEW SOLO X18 MODEL

Stillwater Designs is considering a new Kicker speaker model: Solo X18, which is a large and expensive subwoofer (projected price is $760 to distributors). The company con- trols the design specifications of the model and contracts with manufacturers in main- land China to produce the model. Stillwater Designs pays the freight and custom duties. The product is shipped to Stillwater and then sold to distributors throughout the United States.

The market for this type of subwoofer is small and competitive. It is expected to have a 3-year life cycle. Market test reviews were encouraging. One potential customer noted that the speaker could make a deaf person hear again. Another remarked that the bass could be heard two miles away. Another customer was simply impressed by the size and watts of the subwoofer (a maximum of 10,000 watts capability). Encouraged by the results of market tests, the Product Steering Committee also wanted to review the finan- cial analysis. The projected revenues and costs at three levels of sales volume are as fol- lows (for the 3-year life cycle):

	Pessimistic	Most Likely	Optimistic
Sales volume (units)	72,000	150,000	250,000
Variable costs (total):
Acquisition cost	$43,200,000	$ 90,000,000	$150,000,000
Freight	4,320,000	9,000,000	15,000,000
Duties	1,800,000	3,750,000	6,250,000
Total	$49,320,000	$102,750,000	$171,250,000
Fixed costs (total):
Engineering (R&D)	$10,000,000	$ 10,000,000	$ 10,000,000
Overhead	3,000,000	3,000,000	3,000,000
Total	$13,000,000	$ 13,000,000	$ 13,000,000

Required:

1. Prepare flexible budget formulas for the cost items listed for the Solo X18 model. Also, provide a flexible budget formula for total costs.

2. Prepare an income statement for each of the three levels of sales volume. Discuss the value of before-the-fact flexible budgeting and relate this to the current example.

3. Form a group with two to four other students. Assume that the group is acting as a Product Steering Committee. Evaluate the feasibility of producing the Solo X18 model (using the given financial data and the results of Requirements 1 and 2.) If the financial performance of the model is questionable, discuss possible courses of action that the company might take to improve the financial performance of the product. Also, discuss some reasons why the company might wish to produce the model even if it does not promise a good financial return.

Reference no: EM13938756

Questions Cloud

Compile the program and return its errors : I got it down to one error by putting int MAX = 60; under the main functin and taking the .h off iostream etc. but still had one error and not sure if that was right anyway.

Find and sketch this system : The unit impulse response of an LTIC systems is h(t)=2e^-4t u(t). Find and sketch this system's (zero-state) response y(t) if the input f(t) is e^-6t u(t).

Which is the inspiration for the farnese ceiling : In Christian architecture, which of the following is a building over a grave that was traditionally circular in plan?Which is the inspiration for the Farnese ceiling

Country potential through analysis of risk and opportunities : How to assess country potential through an analysis of risks and opportunities.

Prepare flexible budget formulas for the cost items listed : Prepare flexible budget formulas for the cost items listed for the Solo X18 model. Also, provide a flexible budget formula for total costs.

Meal production the layout of the rice plate : For automated tray meal production the layout of the rice plate holding the cooked rice and the transfer line with meal tray.

Rights and responsibilities in the human rights discourse : write a critical essay on the need to balance rights and responsibilities in the human rights discourse. Jim Ife (2010) states: Accepting a framework of rights cannot imply simply a selfish attitude on the part of the individual, claiming her/his ..

Organisations that do not have the same product : In addition, it would be more beneficial and workable to select two organisations that do not have the same product or type or operation. This will assist you in the requirements of the other assignments in this course.

When the fed buys bonds to increase the money supply : When the Fed buys bonds to increase the money supply this (increase or decrease) the Federal funds rate which causes price or interest rates to (increase or decrease). This would also (increase or decrease) aggregate demand

User Account

All Pages