Model Company manufactures a single electronic product called Lastik. Lastik sells for P900 per unit. In 2019, the following variable costs were incurred to produce each Lastik device. Direct labor P180 Direct materials P240 Factory overhead P105 Selling costs P75 Total variable costs P600 Model is subject to 40 percent income tax rate, and annual fixed costs are P6,600,000. Except for an operating loss incurred in the year of incorporation, the firm has been profitable over the last five years. In 2020, a significant change in Model's production technology caused a 10% increase in annual fixed costs and a 20% unit cost increase in the direct labor component as a result of higher skilled direct labor. However, this change permitted the replacement of a costly imported component with a local component. The effect was to reduce unit material costs by 25%. There has been no change in the Lastik selling price. What sales volume in units and amount should Model Company achieve in order to breakeven?

Model Company manufactures a single electronic product called Lastik. Lastik sells for P900 per unit. In 2019, the following variable costs were incurred to produce each Lastik device. Direct labor P180 Direct materials P240 Factory overhead P105 Selling costs P75 Total variable costs P600 Model is subject to 40 percent income tax rate, and annual fixed costs are P6,600,000. Except for an operating loss incurred in the year of incorporation, the firm has been profitable over the last five years. In 2020, a significant change in Model's production technology caused a 10% increase in annual fixed costs and a 20% unit cost increase in the direct labor component as a result of higher skilled direct labor. However, this change permitted the replacement of a costly imported component with a local component. The effect was to reduce unit material costs by 25%. There has been no change in the Lastik selling price. What sales volume in units and amount should Model Company achieve in order to breakeven?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 4EA: Zena Technology sells arc computer printers for $55 per unit. Unit product costs are: A special...

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Zena Technology sells arc computer printers for $55 per unit. Unit product costs are: A special order to purchase 15,000 arc printers has recently been received from another company and Zena has idle capacity to fill the order. Zena will incur an additional $2 per printer for additional labor costs due to a slight modification the buyer wants made to the original product. One-third of the manufacturing overhead costs is fixed and will be incurred no matter how many units are produced. When negotiating the price, what is the minimum selling price that Zena should accept for this special order?
Deuce Sporting Goods manufactures a high-end model tennis racket. The company’s forecasted income statement for the year, before any special orders, is as follows: Fixed costs included in the forecasted income statement are $400,000 in manufacturing cost of goods sold and $200,000 in selling expenses. A new client placed a special order with Deuce, offering to buy 1,000 tennis rackets for $100.00 each. The company will incur no additional selling expenses if it accepts the special order. Assuming that Deuce has sufficient capacity to manufacture 1,000 more tennis rackets, by what amount would differential income increase (decrease) as a result of accepting the special order? (Hint: First compute the variable cost per unit relevant to this decision.)
Cinnamon Depot bakes and sells cinnamon rolls for $1.75 each. The cost of producing 500,000 rolls in the prior year was: At the start of the current year, Cinnamon Depot received a special order for 18,000 rolls to be sold for $1.50 per roll. The company estimates it will incur an additional $1,000 in total fixed costs in order to lease a special machine that forms the rolls in the shape of a heart per the customers request. This order will not affect any of its other operations. Should the company accept the special order? (Show your work.)
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