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Author Question: Auto Tires has been in the tire business for four years. It rents a building but owns all of its ... (Read 94 times)

awywial

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Auto Tires has been in the tire business for four years. It rents a building but owns all of its equipment. All employees are paid a fixed salary except for the busy season (April-June), when temporary help is hired by the hour. Utilities and other operating charges remain fairly constant during each month except those in the busy season.

Selling prices per tire average $75 except during the busy season. Because a large number of customers buy tires prior to winter, discounts run above average during the busy season. A 15% discount is given when two tires are purchased at one time. During the busy months, selling prices per tire average $60.

The president of Auto Tires is somewhat displeased with the company's management accounting system because the cost behavior patterns displayed by the monthly breakeven charts are inconsistent; the busy months' charts are different from the other months of the year. The president is never sure if the company has a satisfactory margin of safety or if it is just above the breakeven point.

Required:
a.Why might it be difficult to use CVP in this situation?
b.How can the information be presented in a better format for the president? 


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Marked as best answer by awywial on Mar 6, 2021

Heffejeff

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awywial

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Reply 2 on: Mar 6, 2021
Wow, this really help


bimper21

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Reply 3 on: Yesterday
Excellent

 

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