Influence of fixed and variable costs on price

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Reference no: EM131110939

Influence of fixed and Variable Costs on Price and profit. In 19A,The Keswick Products company produced an machine that sold for $600, of which amount $450 represented cost of goods sold and $50 represented marketing and administrative expenses. The cost of goods sold was comprised of 40% materials cost, 40% labor cost, and 20% factory overhead. During 19A 2000 machines were sold. During 19B, an increase of 20% in the cost of materials and an increase of 255 in the cost of labor are anticipated. The company plans to raise the selling price to $675 per unit with a resulting decrease off 40% in the number of units to be sold.

Required:'(1) an income statement for the year 19B indicating the new costs per unit. Assume that materials and labor costs will still equal 80% of the cost of goods sold for 19B and marketing and administrative expenses are still $50 per unit.

(2) After the statement required in (1) was prepared, it was ascertained that the 20% factory overhead in 19A consisted of $100,000 fixed expenses and $80,000 variable expenses. The decrease in number of units to be sold in 19B does not influence the fixed costs. Prepare a revised income statement for 19B disregarding the 80% relationship of materials and labor costs to cost to cost of goods sold.

Reference no: EM131110939

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