## UglyDoll Custom Plushies Ltd.

2) UglyDoll Custom Plushies Ltd. has \$15 million in credit sales per year and on average they are outstanding for 75 days. Each giant custom plushie sells for \$1,000 and results in a 10% contribution margin. Receivables are financed via a line of credit at a 12% interest rate. Bad debts total \$350,000 annually. The accounting department has a new plan by which it estimates it can eliminate half of the bad debts and reduce the average collection period to 45 days if it is permitted to hire new collections specialists at a cost \$170,000 per year. The new plan would result in 2% lost sales. Consider both the existing and the new credit policy and determine if UglyDoll Custom Plushies would be better off with new plan and if so, by how much? Show all your work. (12 Marks)

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## Objective Type Questions

a) A company sells a product which has a unit sales price of \$5, unit variable cost of \$3 and total fixed costs of \$120,000. The number of units the company must sell to break even is

1. 60,000 units.
2. 24,000 units.
3. 240,000 units.
4. 40,000 units.

b) A company has total fixed costs of \$120,000 and a contribution margin ratio of 20%. The total sales necessary to break even are

1. \$480,000.
2. \$600,000.
3. \$150,000.
4. \$144,000.

c) At the break-even point of 2,500 units, variable costs are \$55,000, and fixed costs are \$32,000. How much is the selling price per unit?

1. \$34.80
2. \$9.20
3. \$12.80
4. \$22.00

## Write up on Cost, Volume and Profit Analysis

Write up on Cost, Volume and Profit Analysis in \$3 Only (Instant Download)

Write a 350 to 700-word paper, using APA guidelines, that addresses the following:
o Explain the components of cost-volume-profit analysis.
o What does each of the components mean?
o Based on the formulas you have reviewed, what happens to contribution margin per unit when unit selling prices increase? Illustrate your explanation with an example from a fictitious company of how an increase in unit selling prices might affect contribution margin.
o When fixed costs decrease, what does this do for sales? Illustrate your explanation with an example from a fictitious company.
o Define contribution ratios.
o What happens to contribution ratios as one of the components changes?

The Components of CVP analysis are:

I) Fixed cost: Fixed costs remain the same even if the volume (i.e., quantity of product manufactured and sold) changes. A cost like factory rent would be an example of a fixed cost. The nature of fixed cost presented in the following figure (a).

II) Variable cost: Variable costs are those costs which have a perfect positive correlation with volume of production/ sales. It means these costs vary in proportion to changes in activity. An example of a variable cost is raw material. If volume of production increases by say 10%, then we can expect raw material costs also to increase by 10%.

III) Contribution:

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## Contribution Margin

Contribution Margin in \$15 Only

1. Contribution margin for Gliders under each of the following assumptions: actual sales volume at budgeted selling prices, budgeted resource usage, and budgeted costs.

2. Contribution margin for Chairs with Footstools under each of the following assumptions: actual sales volume at budgeted selling prices, budgeted resource usage, and budgeted costs.

Team Assignment 2: Project-Analysis, Sales Promotions

Price of Answer: Just US\$15 only

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