Question

yacama shades supplies sun-blocking shades to home remodeling supply stores such as home depot and lowes as well as discounters such as walmart. the cfo is worried about inflation and the effect on yacama shades' financial results. the variable production costs are $150, and fixed costs amount to $2 million. production engineers have advised management that they expect unit labor costs to rise by 10 percent and unit materials costs to rise by 25 percent in the coming year. of the $150 variable costs, 50 percent are from labor and 20 percent are from materials. variable overhead costs are expected to increase by 20 percent. sales prices cannot increase more than 6 percent. it is also expected that fixed costs will rise by 13.2 percent as a result of increased taxes and other miscellaneous fixed charges. presently, the company sells 32,000 units for $400 per unit. the company wishes to maintain the same level of profit in real dollar terms. it is expected that to accomplish this objective, profits must increase by 10 percent during the year. required: compute the volume in units and the dollar sales level necessary to maintain the present profit level, assuming that the maximum price increase is implemented. compute the volume of sales and the dollar sales level necessary to provide the 10 percent increase in profits, assuming that the maximum price increase is implemented. if the volume of sales were to remain at 32,000 units, calculate the new price that would be required to attain the 10 percent increase in profits.

Answer 1

A business scenario is presented in which Yacama Shades needs to calculate necessary sales volume and pricing adjustments in response to inflation and cost increases to maintain and increase profits.

Step-by-step explanation:

The question involves a complex business scenario that calls for an understanding of cost behavior, pricing strategy, and profit planning. In essence, Yacama Shades must determine the necessary volume of units and sales in dollars to maintain its current profit level and to achieve an additional 10 percent increase in profits, factoring in inflation and the costs increases that cannot be passed on entirely to consumers through price hikes.

A calculation considering various components such as variable costs, fixed costs, expected cost increases, and maximum allowable sales price increase is needed to derive the required new unit volumes and sales levels. If the volume of sales remains constant at 32,000 units, a new price calculation must be done to achieve the desired profit increase.