(Solved by Humans)-Accounting 203. Prepare a budgeted contribution margin income

Question

Accounting 203.?

• Prepare?a?budgeted?contribution?margin?income?statement?for?2016.?Your?report?should?show?the?budgeted?(estimated)?operating?income?based?on?the?information?presented?in?Part?One?and?Part?two.?Will?the?changes?improve?operating?income?sufficiently??Explain?
• Calculate the total contribution margin from the Australian Sales.
• Prepare a revised budgeted contribution margin income statement for 2016 that includes the Australian order. Does Datura need the Australian sales to achieve its targeted operating income for 2016?

ACCOUNTING 203
EXAM #2 (CHS.5,6,7)
TEAM CASE/PROBLEM 60 PTS.
DUE DATE: Wednesday, May 18

NAMES:

PART ONE: 15 PTS.
Based in Italy, Datura, Ltd., in an international importer-exporter of pottery
with distribution centers in the United States, Europe, and Australia. The
company was very successful in its early years, but its profitability has since
declined. As a member of a management team selected to gather
information for Datura?s next strategic planning meeting, you have been
asked to review its most recent contribution margin income statement for
the year ended December 31, 2015, which follows:
Datura, Ltd.
Contribution Margin Income Statement
For the year Ended December 31, 2015
Sales Revenue*
Less variable costs:
Purchases
Distribution
Sales commissions
Total variable costs
Contribution margin
Less fixed costs:
Distribution
Selling
General and Admin.
Total fixed costs
Operating Income

$13,500,000
6,000,000
2,115,000
1,410,000
9,525,000
$ 3,975,000
985,000
1,184,000
871,875
3,040,875
934,125

*In 2015, Datura sold 15,000 sets of pottery.
REQUIRED:
1. For each set of pottery sold in 2015, calculate the:
(a) Selling Price per unit

(b)Variable Purchases cost per unit
(c) Variable Distribution cost per unit
(d)Variable Sales Commission per unit
(e) Contribution Margin per unit
2. Calculate the break-even point in units and in sales dollars.
3. Historically, Datura?s variable costs have been about 60 percent of
sales. What was the ratio of variable costs to sales in 2015 (round to
two decimal places)?

PART TWO: 10 PTS.
Refer to the information in Part One. In January 2016, the president of
Datura, Ltd., conducted a strategic planning meeting. During the meeting,
the vice president of distribution noted that because of a new contract with
an international shipping line, the company?s fixed distribution costs for 2016
would be reduced 10 percent and its variable distribution cost per unit by 4
percent. The vice president of sales offered the following information:
We plan to sell 15,000 sets of pottery again in 2016, but based on review of
the competition, we are going to lower the selling price to $890 per set. To
encourage increased sales, we will raise sales commissions to 12 percent of
the selling price.
The president is concerned that the changes described by the vice
presidents may not improve operating income sufficiently in 2016. If
operating income does not increase by at least 10 percent, she will want to
find other ways to reduce the company?s costs. She asks you to evaluate the
situation by preparing a report.
REQUIRED:
1. Prepare a budgeted contribution margin income statement for 2016.
Your report should show the budgeted (estimated) operating income
based on the information presented in Part One and Part two. Will the
changes improve operating income sufficiently? Explain?

PART THREE: 15 PTS.
As noted in Parts One and Two, Datura Ltd., sold 15,000 sets of pottery in
2015. For the next year, 2016, Datura?s strategic planning team targeted
sales of 15,000 sets of pottery, reduced the selling price to $890 per set,
increased sales commissions to 12 percent of the selling price, and
decreased fixed distribution costs by 10 percent and variable distribution
cost per unit by 4 percent. It was assumed that all other costs would stay the
same.
Based on the analysis of these changes, Datura?s president is concerned that
the proposed strategic plan will not meet her goal of increasing Datura?s
operating income by 10 percent over last year?s income and that the
operating income will be less than last year?s income. She has come to you
for a spreadsheet analysis of the proposed strategic plan and for the analysis
of a special order she just received from an Australian distributor for 4,500
sets of pottery. The order?s selling price, variable purchases cost per unit and
sales commission will be the same as the rest of the business, but the
variable distribution costs will be $160 per unit. Total fixed costs will be
unaffected by the special order.
REQUIRED:
1. Calculate the total contribution margin from the Australian Sales.
2. Prepare a revised budgeted contribution margin income statement for
2016 that includes the Australian order. Does Datura need the
Australian sales to achieve its targeted operating income for 2016?

TEAM PARTICIPATION POINTS: 20 PTS.