Question

Required information [The following information applies to the questions displayed below.) Corrigan Enterprises is studying the acquisition of two electrical component insertion systems for producing its sole product, the universal gismo. Data relevant to the systems follow. Model no. 6754: Variable costs, $18.00 per unit Annual fixed costs, $985,700 Model no. 4399: Variable costs, $12.80 per unit Annual fixed costs, $1,114,000 Corrigan's selling price is $66 per unit for the universal gismo, which is subject to a 5 percent sales commission. (In the following requirements, ignore income taxes.) 2-a. Calculate the net income of the two systems if sales and production are expected to average 43,000 units per year. Net Income Model No. 6754 Model No. 4399

Answer 1

aca) Calculation of net income of the two rystems Model Nor- 6754 = Variable cost = $18+ 5% sales commission - $18 + 5% of 66 $18 +$3.3 => $21.3 So, Variable cost of Model Not G754 is $21.3. Model No - 4399 Jariable cost = $12.8+5% of sales commission >>$19.8+5% 66 $19.8+ $3:3 So, kerciable.cost of nodol. Nb:=4399=> $161.. I Particulars Model No: 6754 Modo Not 4399 I Selling price perunit (a) $66 $66 dend variable cost per unit (6) [$21-3 - (c) Contribution perunit (ab) $44.17 $49.9 (D)No of units produced expected one) 43,000 43,000 ce Contribution Jalue (exd) $1922,100 $2, 145,700 Lone fixed cost (6) 1985,700 $144,000) C Net income (e-f) $ 936,400 $1,031,700 $16:1) 12 (6) Model No.4399 would lee more profitable, as it has contribution and net income in higher value when compared to Model No. 6754. (3) Computation of depreciation :- Depreciation Cost of the anet - Salvage Value no. of years of life of the asset > 430,000 - 0 Depreciation = 439,000 £6,000

Since, this purchase of additional equipment is not reflected in the preceding figures we should add the depreciation camount to the giuon fixed costs as the amount of depreciation is also termed as Modal 4399:- Total of fixed cost = $1 114,000 + $86000 - = $4,200,000 Desired Sales = fixed cost + Desired profit - Puratio. Fred cost=$1,200,000 Desired profit = $9 74,000 Puratio - Contribution 8100 49.9x100 Sales - ie, PVratio = 75.61% Therefore, e Denised Sales= 1,200,000 +974,000 75.61% = 27,000 75.61% Required Denised sales 82,875,28). - Required sales in units = 2,875,281 Sales - Selling pericepu) - > 43,56 Sunits (Rounded off). 4 Nolume level where annual cost of each system be equal is BEP Bepel) Break even point (senits) = fixed cost - contribution pile Model Dot 6754 Model Not 4399 Bepunits = 985,700 Belunits - 4114000 /Belunits = 22,05 l units Bepunets 22,325 units off) ? 44,7