CLASS CASE: WHITNEY COMPANY

Statement of the Problem: Possible course of action to take by Whitney Company to make next year of operations
profitable.

1.
Whitney Company
Income Statement
For the Year Ended, December 31

in Totals in Units
Sales $ 450,000.00 $ 10.00
Less: Variable Costs
Direct Materials $ 90,000.00 $ 2.00
Direct Labor 78,300.00 1.74
Variable Overhead Cost 13,500.00 0.30
Sales Commissions 27,000.00 0.60
Shipping 5,400.00 0.12
Billing and Other 1,800.00 216,000.00 0.04 4.80
Contribution Margin $ 234,000.00 $ 5.20
Less: Fixed Costs
Fixed Overhead Cost 85,000.00 1.89
Fixed Selling Expenses 120,000.00 2.67
Fixed Administrative Expenses 48,000.00 253,000.00 1.07 5.62

Net Operating Loss $ (19,000.00) $ (0.42)

2.
Vice President's Proposal:
New Selling Price $ 8.00
Total Units Produced & Sold 75,000.00

Whitney Company
Income Statement
For the Year Ended, December 31

in Totals in Units
Sales $ 600,000.00 $ 8.00
Less: Variable Costs
Direct Materials $ 150,000.00 $ 2.00
Direct Labor 130,500.00 1.74
Variable Overhead Cost 22,500.00 0.30
Sales Commissions 36,000.00 0.60
Shipping 9,000.00 0.12
Billing and Other 3,000.00 351,000.00 0.04 4.80
Contribution Margin $ 249,000.00 $ 3.20
Less: Fixed Costs
Fixed Overhead Cost 85,000.00 1.13
Fixed Selling Expenses 120,000.00 1.60
Fixed Administrative Expenses 48,000.00 253,000.00 0.64 3.37

Net Operating Loss $ (4,000.00) $ (0.17)

 Sales Manager's Proposal:
New Selling Price $ 12.00
Total Units Produced & Sold 60,000.00
New commission to sales 9%
Increase in advertising $ 100,000.00

Whitney Company
Income Statement
For the Year Ended, December 31

in Totals in Units
Sales $ 720,000.00 $ 12.00
Less: Variable Costs
Direct Materials $ 120,000.00 $ 2.00
Direct Labor 104,400.00 1.74
Variable Overhead Cost 18,000.00 0.30
Sales Commissions 64,800.00 1.08
Shipping 7,200.00 0.12
Billing and Other 2,400.00 316,800.00 0.04 5.28
Contribution Margin $ 403,200.00 $ 6.72
Less: Fixed Costs
Fixed Overhead Cost 85,000.00 $ 1.42
Fixed Selling Expenses 220,000.00 3.67
Fixed Administrative Expenses 48,000.00 353,000.00 0.80 5.88

Net Operating Income $ 50,200.00 $ 0.84

3.
President's Proposal:
Raw Material Costs $ 1.30
Target Profit $ 30,200.00
New Variable Cost per Unit $ 4.10

Target Profit $ 30,200.00

Add: Fixed Costs 253,000.00
Contribution Margin $ 283,200.00

Selling Price $ 10.00

Variable Cost per Unit 4.10
Contribution Margin per Unit $ 5.90

Total Units to be Sold 48,000.00

4.
Board of Director's Proposal:
Sales in Units 60,000.00
Target profit on Sales 4.5%

Sales $ 600,000.00
Less: Variable Costs 288,000.00
Contribution Margin $ 312,000.00
Less: Fixed Costs 253,000.00
Less: Target Profit 27,000.00
Increase in Advertising Expense $ 32,000.00
 5.
Special units ordered 9,500.00
New Shipping Cost per unit $ 0.18
New Variable Admin Cost per unit $ 0.03
Special Insurance Fee $ 5,700.00
Target Profit on Total Operations $ 14,250.00
Sales Commission for the order $ -

Direct Materials $ 19,000.00

Direct Labor 16,530.00
Variable Overhead Cost 2,850.00
Sales Commissions -
Shipping 1,710.00
Billing and Other 285.00
Total Variable Costs $ 40,375.00
Special Insurance Fee 5,700.00
Target Profit on Total Operations 33,250.00
Total Sales $ 79,325.00
Divided by: Units Ordered 9,500.00
Special Selling Price per unit $ 8.35

Submitted by:

Ronil John Garganian

Geraldine Alisbo