Clifford Co

question 55

Essay

Clifford Co.manufactures and sells adjustable windows for remodeling homes and new housing.Clifford developed its budget for the current year assuming that the windows would sell at a price of $400 each.The variable costs for each window were forecasted to be $200 and the annual fixed costs were forecasted to be $100,000.Clifford had targeted a profit of $400,000.While Clifford 's sales usually rise during the second quarter,the May financial statements reported that sales were not meeting expectations.For the first five months of the year,only 350 units had been sold at the established price,with variable cost as planned,and it was clear that the target profit for the year would not be reached unless some actions were taken.Clifford 's president assigned a management committee to analyze the situation and develop several alternative courses of action.The following three alternatives were presented to the president,only one of which can be selected.1.Reduce the selling price by $40.The marketing department forecasts that with the lower price,2,700 units could be sold during the remainder of the year.2.Lower variable costs per unit by $25 through the use of less expensive materials.Because of the difference in materials,the selling price would have to be lowered by $30 and sales of 2,200 units for the remainder of the year are forecast.3.Cut fixed costs by $10,000 and lower the selling price by 5 percent.Sales of 2,000 units would be expected for the remainder of the year.Required:
a.If no changes are made to the selling price or cost structure,estimate the number of units that must be sold during the year to break-even.b.If no changes are made to the selling price or cost structure,estimate the number of units that must be sold during the year to attain the target profit of $400,000.c.Determine which of the alternatives Clifford's president should select to maximize profit.

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Definitions:

Glomus

A peripheral chemoreceptor that is primarily involved in regulating respiratory activity in response to changes in blood gases.

Metarteriole

One of the small peripheral blood vessels that contain scattered groups of smooth muscle fibers in their walls; located between the arterioles and the true capillaries.

Nutrients

Substances obtained from food that are essential for growth, metabolism, and overall health.

Gases

Substances that exist in the gaseous state at standard temperature and pressure.