Paper Topic:

Module 5 Pecos Printers

Question 1

Contribution per unit at the price set by Paul Pecos

Selling Price 300

Direct Materials 125

Direct Labor 50

Variable Overheads 30

Contribution 95

As we can see from the contribution per unit calculation performed above , lower selling prices of the product can be accepted , because a positive contribution will still be attained . We also have to keep in mind that fixed costs will not be affected for up to a production of 20 ,000 units . Therefore management should try to reach sales of 20 ,000

units from s that provide a positive contribution in to diminish idle capacity and enhance profitability

Question 2

Contribution per unit 95

Fixed Cost per unit 45

Margin of Safety 50

Minimum price set by Paul Pecos 300

Margin of Safety 50

Actual minimum selling price 250

The reaction of Paul to Ms . Goodperson 's sale was wrong in view that his decision was not in the financial performance best interest . In addition he demoralized staff in taking initiative to aid the company 's operations . Indeed the lowest price that the company can charge is 250 as revealed by the calculations above

Question 3

Decision of Paul Pecos

Marginal Costing Profit Statement

Sales Revenue (see note 1 ) 286 ,500

Variable Costs

Direct Materials 125 x 925 ) 115 ,625

Direct Labor 50 x 925 ) 46 ,250

Variable Overheads 30 x 925 ) 27 ,750

Contribution 96 ,875

Fixed Costs 450 ,000

Net (Loss (353 ,125 Note 1 - Sales Volume and Revenue

Details Selling Price Volume Sales Revenue

Sam Smoothtalk

Offer 1

Offer 2

310

305

200

150

62 ,000

45 ,750

Harry Hustler

Offer 1

Offer 3

Offer 4

305

300

330

50

100

75

15 ,250

30 ,000

24 ,750

Gary Giftofgab

Offer 1

Offer 3

305

325

250

100

76 ,250

32 ,500 925 286 ,500 According to lowest price of 250 set in Question 2

Marginal Costing Profit Statement

Sales Revenue (see note 2 ) 578 ,000

Variable Costs

Direct Materials 125 x 1 ,925 ) 240 ,625

Direct Labor 50 x 1 ,925 ) 96 ,250

Variable Overheads 30 x 1 ,925 ) 57 ,750

Contribution 183 ,375

Fixed Costs 450 ,000

Net (Loss (266 ,625 Note 2 - Sales Volume and Revenue

Details Selling Price Volume Sales Revenue

Glenda Goodperson

Offer Taken

290

700

203 ,000

Sam Smoothtalk

Offer 1

Offer 2

Offer 3

310

305

295

200

150

300

62 ,000

45 ,750

88 ,500

Harry Hustler

Offer 1

Offer 3

Offer 4

305

300

330

50

100

75

15 ,250

30 ,000

24 ,750

Gary Giftofgab

Offer 1

Offer 3

305

325

250

100

76 ,250

32 ,500 1 ,925 578 ,000 Question 4

The firm is sustaining a loss both under Paul Pecos decision rule and under the suggested selling price due to the high fixed costs incurred Indeed if the firm reaches the 20 ,000 units sale , the net loss would still amount to 145 ,000 95 x 20 ,000 ) - 450 ,000 . In this respect the organization should...

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