Assignment
You are a manager of Table Top Limited, a manufacturer of small tables .
You have been instructed to prepare a budget for the next year's operations with the following forecast:
The sales volume is forecast to increase by 50% if the sales price is reduced by 25%.
The direct wages rates is expected to increase by 10%
Material prices will remain unchanged, except that if production is increased by at least 20% above the current year output level, a 5% bulk purchase discount on all materials purchased will be obtained.
Variable production and distribution expenses will increase by an average of 10% next year
Fixed costs will rise by an average of 25%
Variable sales cost refers to sales commission which is in proportion of sales revenue turnover
Details of the company's operations for the current year are as follows:
Sales ( 10,000 units) $ 700,000
Costs
Material Direct 88,000
Wages: Direct 144,000
Indirect 33,000
Production expenses: Variable 44,000
Fixed 53,000
Administration expenses: Fixed 42,000
Sales expenses: Variable 35,000
Fixed 37,000
Distribution expenses: Variable 31,000
Fixed 18,000
Total Costs 525,000
Profit 175,000
Indirect wages are regarded as a fixed cost.
Question: Prepare a profit forecast for the next year in contribution margin statement format, on the basis of the sales forecast and cost estimates.