Question

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 44,000 speaker sets: Sales Variable costs Fixed costs $3,608,000 902,000 2,310,000 Management is considering relocating its manufacturing facilities to northern Mexico to reduce costs. Variable costs are expected to average $16.00 per set; annual fixed costs are anticipated to be $1,990,000. (In the following requirements, ignore income taxes.) 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 ndeffect) of the following operating changes. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 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. (Do not round Intermediate calculations and round your final answers to nearest whole dollar.)

Answer 1

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Part 1
			Per unit-for reference only
Sales	b	$     3,608,000	$                                                        82
Variable Cost		$      (902,000)	$                                                      (21)
Contribution margin	a	$     2,706,000	$                                                        62
Fixed Cost		$   (2,310,000)
Net Income		$         396,000
Contribution Margin ratio	a/b	75.00%
Target Income	$396,000*2	$         792,000
Dollar sale to achieve target income
(Fixed Cost+Target Income)/CM Ratio		$     4,136,000
($2,310,000+$792,000)/75%
Part 2
			Per unit-for reference only
Sales	b	$     3,608,000	$                                                  82.00
Variable Cost		$      (704,000)	$                                                (16.00)
Contribution margin	a	$     2,904,000	$                                                  66.00
Fixed Cost		$   (1,990,000)
Net Income		$         914,000
Break Even (Speakers)		30,152
$1,990,000/$66
Part 3a
Break Even (Speakers)	a	30,152
Contribution Margin in USA	b	$                   62
Fixed Cost to achieve mexican BEP	a*b	$     1,854,318
Existing Fixed Cost		$     2,310,000
Fixed Cost decrease by		$         455,682
Part 3b
Break Even (Speakers)	a	30,152
Fixed Cost in USA	b	$     2,310,000
Cont Margin to achieve mexican BEP	b/a	$             76.61
Cont Margin existing		$             61.50
Variable cost decreaes by		$             15.11
Part 4
a. Increase
b. No effect
c. Increase
d. No effect