Question

Current Attempt in Progress Pharoah Company had sales in 2022 of $1,551,000 on 51,700 units. Variable costs totalled $620,400, and fixed costs totalled $767,600 A new raw material is available that will decrease the variable costs per unit by 20% (or $2.40 ). However, to process the new raw material, fixed operating costs will increase by $46,400. Management feel that one half of the decline in the variable costs per unit should be passed on to customers in the form of a sales price reduction. The marketing department expects that this sales price reduction will result in a 10% increase in the number of units sold. Prepare a CVP income statement for 2022: (Round per unit cost to 2 decimal places, e.g. 15.25.) (a) Assuming the changes have not been made: Assuming the changes have not been made: (b) Assuming that changes are made as described.

Answer 1

The student's homework involves creating a CVP income statement for Pharoah Company before and after implementing changes in costs and pricing strategies. Scenario (a) is based on existing figures, while scenario (b) incorporates new variable and fixed costs, a revised sales price, and an increase in units sold due to the price change.

Step-by-step explanation:

To address the student's homework about Pharoah Company, we need to create a cost-volume-profit (CVP) income statement before and after the proposed changes.

The scenarios are: (a) without changes and (b) with changes. For scenario (a), the company already provided its sales, unit count, variable, and fixed costs. For scenario (b), the variable cost per unit will decrease by 20% but fixed costs will increase, sales price will be reduced by half the decrease in variable cost per unit, and expected sales volume will increase by 10%.