- For write-up: I will consider completeness, clarity of your logic and analysis. More weight will be put on your analysis and logic than getting a “correct” number. So, for computation questions, please write down the formula and all the necessary steps to get your answers. For questions requiring arguments, please flesh out your idea and clearly articulate your logic.
Solve each question for the write up please. Questions:
Superior Manufacturing Company
- 1) Based on Exhibits 1 and 2, prepare a contribution format of income statement. For sales and variable costs, show both total $ amount and per unit $ amount by product line. For fixed expenses, no need to split them into product lines. What is the company’s break-even point in dollar sales?
- 2) Do you agree with Waters’ decision to keep product 103? Why? Note that you may use your contribution format of income statement from exercise 1) to show your analysis.
- 3) If one could sell 100,000 units of any one of the three products, which product should be chosen? Why? A customer, whose use for the products is such that he gets the same utility per dollar from each of the three, has asked for $100,000 worth of any one of them. Which product should you sell to him? Why?
- 4) Should Superior lower as of January 1, 2006 its price of product 101 to $22.5? Why?
Hint: what does Superior’s contribution margin look like if the price is $24.5? What does Superior’s contribution margin look like if lowering the price to $22.5?
- A typo: Note that in Exhibit 2 product 103, Direct Labor should be 6,877 (NOT 6,879).
- You can ignore Exhibit 4 of the case.