Prepare a budgeted income statement for First-Class Ovenware for 2007 if the engineers’ redesign efforts had worked as originall
y planned. Use these assumptions:
a. First quarter sales of 1,500,000 units will be achieved each quarter in 2007.
b. The selling price for 2007 will remain 10% below the price charged from 2002-2006, and there were no sales price increases during the 2002-2006 period.
c. Variable cost of goods sold averaged about $5.55 per unit of ovenware from 2002-2006.
d. Variable production costs will be reduced by 35% due to the new design.
e. The fixed cost of production in 2006 contained one-time, increased costs (about $4,000,000) for the design changes. For 2007, fixed costs are expected to be about 3.5% higher than 2005.
f. Marketing costs contain both fixed and variable elements, however, it is budgeted based on spending 7% of expected sales revenue.
g. Other fixed costs are expected to increase about 2.5% over 2006.
Would the product manager have met his profit target of 25% return on sales in 2007 for the product line with the redesign?
a. First quarter sales of 1,500,000 units will be achieved each quarter in 2007.
b. The selling price for 2007 will remain 10% below the price charged from 2002-2006, and there were no sales price increases during the 2002-2006 period.
c. Variable cost of goods sold averaged about $5.55 per unit of ovenware from 2002-2006.
d. Variable production costs will be reduced by 35% due to the new design.
e. The fixed cost of production in 2006 contained one-time, increased costs (about $4,000,000) for the design changes. For 2007, fixed costs are expected to be about 3.5% higher than 2005.
f. Marketing costs contain both fixed and variable elements, however, it is budgeted based on spending 7% of expected sales revenue.
g. Other fixed costs are expected to increase about 2.5% over 2006.
Would the product manager have met his profit target of 25% return on sales in 2007 for the product line with the redesign?
2 answers:
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