Easy Go Company manufactures a line of electric garden tools that are sold in general hardware stores. The company's controller, Amy Tait, has just received the sales forecast for the coming year for Easy Go's three products: weeders, hedge clippers, and leaf blowers. Easy Go has experienced considerable variations in sales volumes and variable costs over the past two years, and Harlow believes the forecast should be carefully evaluated from a cost-volume-profit viewpoint. The preliminary budget information for the next year is presented below. $$\begin{array} { | l | r | r | r | }
\hline & \text { Weeders } & \begin{array} { r }
\text { Hedge } \
\text { clippers }
\end{array} & \begin{array} { r }
\text { Leaf } \
\text { Blowers }
\end{array} \
\hline \text { Unit sales } & 50,000 & 50,000 & 100,000 \
\hline \text { Unit selling price } & \$ 28.00 & \$ 36.00 & \$ 48.00 \
\hline \text { Variable manufacturing } \
\text { cost per unit } & 13.00 & 12.00 & 25.00 \
\hline \begin{array} { l }
\text { Variable selling cost } \
\text { per unit }
\end{array} & 5.00 & 4.00 & 6.00 \
\hline
\end{array}$$ For the next year, Easy Go's fixed factory overhead is budgeted at $2 million, and the company's fixed selling and administrative expenses are forecast to be $600,000. Easy Go has a tax rate of 40 percent.
Required:
a. Determine Easy Go Co.'s budgeted net income for next year.
b. Assuming that the sales mix remains as budgeted, determine how many units of each product Easy Go must sell in order to break even next year.
c. Determine the total dollar sales Easy Go must sell next year in order to earn an after-tax net income of $450,000.
d. After preparing the original estimates, Easy Go determines that its variable manufacturing cost of leaf blowers will increase 20 percent and the variable selling cost of hedge clippers can be expected to increase $1 per unit. However, Easy Go has decided not to change the selling price of either product. In addition, Easy Go learns that its leaf blower is perceived as the best value on the market, and it can expect to sell three times as many leaf blowers as any other product. Under these circumstances, determine how many units of each product Easy Go will have to sell to break even in next year.
e. Explain the limitations of cost-volume-profit analysis that Amy Tait should consider when evaluating Easy Go's next year's budget.

Question

Easy Go Company manufactures a line of electric garden tools that are sold in general hardware stores. The company's controller, Amy Tait, has just received the sales forecast for the coming year for Easy Go's three products: weeders, hedge clippers, and leaf blowers. Easy Go has experienced considerable variations in sales volumes and variable costs over the past two years, and Harlow believes the forecast should be carefully evaluated from a cost-volume-profit viewpoint. The preliminary budget information for the next year is presented below. $$\begin{array} { | l | r | r | r | } 
\hline & \text { Weeders } & \begin{array} { r } 
\text { Hedge } \
\text { clippers }
\end{array} & \begin{array} { r } 
\text { Leaf } \
\text { Blowers }
\end{array} \
\hline \text { Unit sales } & 50,000 & 50,000 & 100,000 \
\hline \text { Unit selling price } & \$ 28.00 & \$ 36.00 & \$ 48.00 \
\hline \text { Variable manufacturing } \
\text { cost per unit } & 13.00 & 12.00 & 25.00 \
\hline \begin{array} { l } 
\text { Variable selling cost } \
\text { per unit }
\end{array} & 5.00 & 4.00 & 6.00 \
\hline
\end{array}$$ For the next year, Easy Go's fixed factory overhead is budgeted at $2 million, and the company's fixed selling and administrative expenses are forecast to be $600,000. Easy Go has a tax rate of 40 percent.
Required:
a. Determine Easy Go Co.'s budgeted net income for next year.
b. Assuming that the sales mix remains as budgeted, determine how many units of each product Easy Go must sell in order to break even next year.
c. Determine the total dollar sales Easy Go must sell next year in order to earn an after-tax net income of $450,000.
d. After preparing the original estimates, Easy Go determines that its variable manufacturing cost of leaf blowers will increase 20 percent and the variable selling cost of hedge clippers can be expected to increase $1 per unit. However, Easy Go has decided not to change the selling price of either product. In addition, Easy Go learns that its leaf blower is perceived as the best value on the market, and it can expect to sell three times as many leaf blowers as any other product. Under these circumstances, determine how many units of each product Easy Go will have to sell to break even in next year.
e. Explain the limitations of cost-volume-profit analysis that Amy Tait should consider when evaluating Easy Go's next year's budget.

Quizplus · Accepted Answer

The Answer of Easy Go Company manufactures a line of electric garden tools that are sold in general hardware stores. The company's controller, Amy Tait, has just received the sales forecast for the coming year for Easy Go's three products: weeders, hedge clippers, and leaf blowers. Easy Go has experienced considerable variations in sales volumes and variable costs over the past two years, and Harlow believes the forecast should be carefully evaluated from a cost-volume-profit viewpoint. The preliminary budget information for the next year is presented below. $$\begin{array} { | l | r | r | r | } 
\hline & \text { Weeders } & \begin{array} { r } 
\text { Hedge } \
\text { clippers }
\end{array} & \begin{array} { r } 
\text { Leaf } \
\text { Blowers }
\end{array} \
\hline \text { Unit sales } & 50,000 & 50,000 & 100,000 \
\hline \text { Unit selling price } & \$ 28.00 & \$ 36.00 & \$ 48.00 \
\hline \text { Variable manufacturing } \
\text { cost per unit } & 13.00 & 12.00 & 25.00 \
\hline \begin{array} { l } 
\text { Variable selling cost } \
\text { per unit }
\end{array} & 5.00 & 4.00 & 6.00 \
\hline
\end{array}$$ For the next year, Easy Go's fixed factory overhead is budgeted at $2 million, and the company's fixed selling and administrative expenses are forecast to be $600,000. Easy Go has a tax rate of 40 percent.
Required:
a. Determine Easy Go Co.'s budgeted net income for next year.
b. Assuming that the sales mix remains as budgeted, determine how many units of each product Easy Go must sell in order to break even next year.
c. Determine the total dollar sales Easy Go must sell next year in order to earn an after-tax net income of $450,000.
d. After preparing the original estimates, Easy Go determines that its variable manufacturing cost of leaf blowers will increase 20 percent and the variable selling cost of hedge clippers can be expected to increase $1 per unit. However, Easy Go has decided not to change the selling price of either product. In addition, Easy Go learns that its leaf blower is perceived as the best value on the market, and it can expect to sell three times as many leaf blowers as any other product. Under these circumstances, determine how many units of each product Easy Go will have to sell to break even in next year.
e. Explain the limitations of cost-volume-profit analysis that Amy Tait should consider when evaluating Easy Go's next year's budget.

Easy Go Company Manufactures a Line of Electric Garden Tools