I SEE THE LIGHT (ISTL) is a subchapterS corporation that manufactures children's lampsThightlights for use in bedrooms. These lamps are sold nationwide through a group of independent sales representatives who have an exclusive sales region. The business is in its tenth year and has asked you to assist in planning for next year's operations.
The lamps are ceramic figurines of animals, boats, boys and girls playing and singing, all in delightful colors. The owner of the business, Big Al, creates a drawing for the figurine and faxes it to a plant in China where a mold is created and a sample produced and hand painted. If the mold meets the expectations of Big Al an order of 500 pieces is placed. There are presently 10 different figurines that come in six different colors; 60 models.
The lamp shades and the electrical parts are supplied from domestic manufacturers. There are presently 10 workers in the plant. They are responsible for receiving the raw material, manufacturing the product, packing and shipping. In addition to Big Al there are two office workers who are responsible for all administrative duties.
Big Al had his accountant prepare the Projected Income Statement and Balance Sheet presented on page two. Big Al heard about your skills in managerial accounting and would like your assistance in the following areas:
Part 1 Fixed and Variable Cost Determinations- Unit Cost Calculations
Part 2 Cost Volume Relationships- Profit Planning
Part 3 Budgets Big Al is about to begin work on the budget for 20x2 and they have requested that you prepare an analysis
based on the following assumptions.
Note: Remember, that we cannot sell part of a lamp, therefore to find the number of units you have to round
up to the next complete unit. Furthuremore, to find the required sales in dollars it may be easier to find the
number of units and then multiply by the selling price per unit.
1. For 20x2 the selling price per lamp will be $45.00. What is the projected contribution margin and contribution margin ratio for each lamp sold?
2. For 20x2 the selling price per lamp will be $45.00. How many lamps must be sold to breakeven?
3. For 20x2 the selling price per lamp will be $45.00. The desired net income in 20x2 is $258,750 . What would sales in units have to be in 20x2 to reach the profit goal?
4. For 20x2 the selling price per lamp will be $45.00. The company would like to have a net income equal to 29.00% of sales. If that is to be achieved, what would be the sales in units in 20x2?
5. If the company believed that it could only sell 25,000 lamps, what would the new selling price have to be so that the new contribution margin per unit is equal to last year's contribution margin per unit?
6. For 20x2 the selling price per lamp will be $45.00 and the effective tax rate is 37%. How many units must be sold to generated a net income of $180,000 after taxes?
7. If the company believes that the demand will be 27,500 units for the year. What selling price per lamp, rounded to two places, would generate a net income of $827,500?