Problem 7-37 CVP Analysis; Ipact of operating
changes
P7-37 Houston-based
Advanced Electronics manufactures audio speakers for desktop computers. The
following data relates to the period just ended when the company produced and
sold 42,000 speaker sets:
Sales
$3,360,000
Variable
Costs 840,000
Fixed
Costs 2,280,000
Management
is considering relocating its manufacturing facilities to Northern Mexico to
reduce costs. Variable costs are expected to average $18 per set; annual fixed
costs are anticipated to be $1,984,000. (Ingors income taxes)
1. Calculate
the company's current income and determine the level of dollar sales needed to
double that figure, assuming that manufacturing operations remain in the United
States.
2. Determine
the break even point in speaker sets if operations are shifted to Mexico
3. Assume
that management desires to achieve the Mexican break even point; however,
operations remain in the United States.
a) If
variable costs remain constant, what must management do to fixed costs? By how
much must fixed costs change?
b) If
fixed costs remain constant, what must management do to the variable cost per
unit? By how much must unit variable cost change?
4.
Determine the impact (increase, decrease, or no effect) of the following
operating changes.
a) Effect
of an increase in direct material costs on the break-even point
b) Effect
of an increase in fixed administration costs on the unit contribution margin.
c) Effect
of an increase in the un it contribution margin on net income.
d) Effect
of an decrease in the number of units sold on the break even point.
TUTORIAL
PREVIEW
1.
|
Current income:
|
||
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Per unit
|
Amount
|
|
|
Sales revenue
|
$80
|
$3,360,000
|
|
Less: Variable costs
|
$20
|
$840,000
|
File name: P7-37
Houston-based.xlsx File type: . xlsx PRICE:$12
