00*
Computed as follows of units
Selling Price
Recommended orders to accept:
Total amount of accepted order
Total Selling Price
203000+286,500 578,000.00**
Assumption that $475,000 fixed cost is spread out evenly during the year, thus, fixed cost per month is at $39,583.33.
Take note that the fixed cost amount did not changed for the month. This is because fixed cost do not change as volume changes. It will be incurred in spite of how many number of units will be produced at a certain level.
The second column (recommended portion) accepted sales order for those above 276.66 cost per unit. In the second column, total units sold increased from 925 units to 1,925 units.
Other recommendations to improve operations
The usefulness of cost-volume-profit analysis as a planning and deciding tool depends on Management's estimates about future conditions. Manager's attitude toward risk-return relationship influences decision of Company's planned and target cost and income.
With this note, I would suggest serious reevaluation of Mr. Ledger's analysis. Management's assumption may make or break the Company's success in budgeting its cost and maximizing profit. With previous illustration, we have shown how critical cost estimates can be in management's analysis and decision. It can result to lost opportunity of earning higher income or higher sales volume.
Additional suggestion is for the Company to evaluate its capacity to provide commissions or incentives to its sales team or employee. It maybe a great motivation or drive for the employees to perform at their best capacity.
Another suggestion is to cascade a uniform sales price to the distributors. The distributors might compare its buying price with another distributor and those with higher price may demand adjustment to...
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