Question

Question 8

[The following information applies to the questions displayed below.) Listed here are the total costs associated with the production of 1,000 drum sets manufactured by TrueBeat. The drum sets sell for $516 each. Costs 1. Plastic for casing-$19,000 2. Wages of assembly workers--$90,000 3. Property taxes on factory-$7,000 4. Accounting staff salaries-$33,000 5. Drum stands (1.000 stands purchased)-$35,000 6. Rent cost of equipment for sales staff-$36.000 7. Upper management salaries-$170,000 8. Annual flat fee for factory maintenance service--$16,000 9. Sales commissions-$25 per unit 10. Machinery depreciation, straight-line-$42,000

Answer 1

ANSWER-Truebeat's management should incur addtional advertising expense as it will give more operating profit. There profit is increased by $29400 and 2 supporing calculation which is computation of net opearting income and BEP in unit is down below.

COMPUTATION OF NET OPERATING INCOME

	1000 DRUMS SOLD	1200 DRUMS SOLD
SALES($516)	$516000	$619200
VARIABLE COST(W.N.1)($169)	$169000	$202800
CONTRIBUTATION	$347000	$416400
FIXED COST(W.N.2)	$304000	$344000
NET OPERATING INCOME	$43000	$72400

WORKING NOTE 1(VARIABLE COST)

VARIABLE COST PER UNIT=$19000/1000+$90000/1000+$35000/1000+25

=$169

WORKING NOTE 2(FIXED COST)

FIXED COST WHEN 1000 UNIT SOLD=$7000+$33000+$36000+$170000+$16000+$42000=$304000

FIXED COST WHEN 1200 UNIT SOLD=$304000+$40000=$344000

COMPUTATION OF BREAK EVEN POINT

	NOT INCREASED FIXED COST	INCREASED FIXED COST
BEP(UNITS)=FIXED COST/SALE PER UNIT-VC PER UNIT	$304000/$516-$169=876 UNITS	$344000/$516-$169=991 UNITS