1. How can a relative profitability analysis conducted by a business provide better information for a business than an absolute profitability analysis?
2. Peanut Processing Company produces cans of peanuts. The company expects sales of 15,000 cans in January, 16,000 cans in February, 17,000 cans in March, and 17,000 cans in April. There are 1,500 cans in inventory at the beginning of January. The company tries to maintain a monthly ending inventory of cans of peanuts equal to 10% of the next months projected sales.
Prepare a production budget for the company for the months of January, February, and March.
3. Ben, the manager of the service department at a local new car dealership, is evaluated and compensated based on the net profit performance of his department each year. The profit of his department for this year is less than in previous years because the service department's share of allocated administrative and selling costs is higher than in previous years. This is due to sales at the dealership this year being less than in previous years. This year revenue in the service department is a little more than in previous years, but sales of new cars are much less than in previous years. Is this situation an example of a meaningful responsibility accounting system or not? Why?
4. If the demand for a certain product is relatively inelastic, what effect on product sales can be expected if the company that produces the product increases the price of the product significantly? Why?