Compute for the number of violins sales which would give Azkaban the same operating income when they choose either of the types detailed above.
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Azkaban Recors is a new business in the industry. They are currently producing guitar and flutes and are planning to add violins in their instruments. Based on the study conducted, the following are cost data related to the creation of two types of violins.
| Type 1 ($) | Type 2 ($) | |
| Direct Materials | 110 per unit | 170 per unit |
| Direct Labor | 170 per unit | 40 per unit |
| Fixed factory overhead | 1,600 | 4,797 |
| Variable factory overhead | 14 per unit | 62 per unit |
| Variable selling expense | 7 per unit | 11 per unit |
Compute for the number of violins sales which would give Azkaban the same operating income when they choose either of the types detailed above.
Number of violins at which operating income of both the types will be same at the point at which cost of both the types is same.
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- Evans, Inc., has a unit-based costing system. Evanss Miami plant produces 10 different electronic products. The demand for each product is about the same. Although they differ in complexity, each product uses about the same labor time and materials. The plant has used direct labor hours for years to assign overhead to products. To help design engineers understand the assumed cost relationships, the Cost Accounting Department developed the following cost equation. (The equation describes the relationship between total manufacturing costs and direct labor hours; the equation is supported by a coefficient of determination of 60 percent.) Y=5,000,000+30X,whereX=directlaborhours The variable rate of 30 is broken down as follows: Because of competitive pressures, product engineering was given the charge to redesign products to reduce the total cost of manufacturing. Using the above cost relationships, product engineering adopted the strategy of redesigning to reduce direct labor content. 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