Question

Check my work Houston-based Advanced Electronics manufactures audio speakers for desktop computers. The following data relate to the period just ended when the company produced and sold 42,000 speaker sets: Sales Variable costs Fixed costs $3,444,000 861,000 2,250,000 eBook Print Management is considering relocating its manufacturing facilities to northern Mexico to reduce costs. Variable costs are expected to average $18.00 per set; annual fixed costs are anticipated to be $1,990,000. (In the following requirements, ignore income taxes.) ferences Required: 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 will remain in the United States. a. If variable costs remain constant, by how much must fixed costs change? b. If fixed costs remain constant, by how much must unit variable cost change? 4. Determine the impact (increase, decrease, or no effect) of the following operating changes. Complete this question by entering your answers in the tabs below.

Answer 1

1)

a)

Sales

$ 3,444,000.00

b)

Desired income

$    666,000.00

($ 333000 x 2)

Less:

Variable Costs

$    861,000.00

Contribution Margin %

75%

($ 2583000 / $ 3444000)

Contribution Margin

$ 2,583,000.00

Fixed Cost

$ 2,250,000.00

Fixed Cost

$ 2,250,000.00

Net Income

$    333,000.00

Required dollar sales

=

(Fixed Cost + Desired Income) / Cont. Margin %

=

($ 2250000 + $ 666000) / 75%

Contribution Margin p.u

$              61.50

=

$ 3,888,000.00

2)
	Sales		$ 3,444,000.00
Less:	Variable Costs		$    756,000.00	(42000 x $ 18)
	Contribution Margin		$ 2,688,000.00
	Fixed Cost		$ 1,990,000.00
	Net Income		$    698,000.00
	Contribution Margin per unit =			$ 2688000 / 42000
			=	$   64.00
	Break even point =		Fixed Cost / Cont. Margin p.u
		=	$ 1990000 / $ 64
		=	31094	units

3)	Break even point			31094	units
	Break Even Point =		Fixed Cost / Cont. Margin per unit
	If Variable cost remains same
	31094	=	Fixed Cost / $ 61.50
	Fixed Cost =		$       1,912,266
	Decrease by ($ 2250000 - $ 1912266)			$   337,734.38
	In Fixed cost remains same
	31094	=	$ 2250000 / Cont. Margin p.u
	Cont. Margin p.u =		$               72.36
	Variable Cost =		Selling price p.u - Cont. margin p.u
		=	$ 82 - $ 72.36
		=	$                 9.64	per unit
	Decrease by ($ 20.5 - $ 9.64)			$             10.86	per unit