Littlefield Partners produce a part sold to agricultural equipment suppliers. For the last year (Year 1), the price, costs, and volume of the part were as follows: Unit price Unit variable cost Annual fixed cost Sales volume $ 60 $ 40 $ 3,320,000 239,200 units Managers at Littlefield believe that next year (Year 2), conditions in the industry will result in lower prices, both for the part they sell and the materials they purchase. Their best estimates at this time are that the selling price will decline by 10 percent while the unit variable cost will decline by 5 percent, taking into account the changes in both materials and labor. They believe that fixed costs will remain the same. Required: a. What was the break-even volume in number of units last year (Year 1)? b. Assume that the managers estimates are correct for Year 2. How many units would have to be sold in Year 2 to earn the same operating profits as earned in Year 1? c. Assume that the managers' estimates on price and unit variable costs are correct for Year 2, but they are uncertain about fixed costs. By how much would fixed costs have to change (in amount and as a percentage of current fixed costs) if the break-even level was to remain the same in Year 2 as in Year 1?
Littlefield Partners produce a part sold to agricultural equipment suppliers. For the last year (Year 1), the price, costs, and volume of the part were as follows: Unit price Unit variable cost Annual fixed cost Sales volume $ 60 $ 40 $ 3,320,000 239,200 units Managers at Littlefield believe that next year (Year 2), conditions in the industry will result in lower prices, both for the part they sell and the materials they purchase. Their best estimates at this time are that the selling price will decline by 10 percent while the unit variable cost will decline by 5 percent, taking into account the changes in both materials and labor. They believe that fixed costs will remain the same. Required: a. What was the break-even volume in number of units last year (Year 1)? b. Assume that the managers estimates are correct for Year 2. How many units would have to be sold in Year 2 to earn the same operating profits as earned in Year 1? c. Assume that the managers' estimates on price and unit variable costs are correct for Year 2, but they are uncertain about fixed costs. By how much would fixed costs have to change (in amount and as a percentage of current fixed costs) if the break-even level was to remain the same in Year 2 as in Year 1?
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter16: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 40P
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Recommended textbooks for you
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Principles of Cost Accounting
Accounting
ISBN:
9781305087408
Author:
Edward J. Vanderbeck, Maria R. Mitchell
Publisher:
Cengage Learning
Excel Applications for Accounting Principles
Accounting
ISBN:
9781111581565
Author:
Gaylord N. Smith
Publisher:
Cengage Learning