Vardy Virtual Viewing Ltd are considering changing one of their main production processes. If the process at one of their touch screen production plants is implemented, it will have a significant impact on the cost structure of one of their most popular lines of virtual reality headsets. Information relevant to this decision is given in the following table: Current process New process Sales price (per headset) £450.00 £450.00 Direct materials cost (per headset) £225.00 £225.00 Direct labour cost (per headset) £90.00 £60.00 Fixed manufacturing overheads £120,000 £240,000 Fixed administrative overheads £100,000 £80,000 Fixed selling and distribution overheads £155,000 £155,000 Break-even point (headsets) 2,778 2,879 Margin of safety at budgeted profit level 62% 56% Unit sales required to achieve budgeted profit of £600,000 (headsets) 7,223 6,516 In addition the following profit-volume chart has been produced: Profit volume chart £1,000,000 Current process profit/ (loss) New process profit/ (loss) £800,000 £600,000 £400,000 £200,000 £0 1,000 3,000 4,000 5,000 6,000 7,000 8,000 -£200,000 -£400,000 -£600,000 Output and sales (units) Profit/(loss)
Vardy Virtual Viewing Ltd are considering changing one of their main production processes. If the process at one of their touch screen production plants is implemented, it will have a significant impact on the cost structure of one of their most popular lines of virtual reality headsets. Information relevant to this decision is given in the following table: Current process New process Sales price (per headset) £450.00 £450.00 Direct materials cost (per headset) £225.00 £225.00 Direct labour cost (per headset) £90.00 £60.00 Fixed manufacturing overheads £120,000 £240,000 Fixed administrative overheads £100,000 £80,000 Fixed selling and distribution overheads £155,000 £155,000 Break-even point (headsets) 2,778 2,879 Margin of safety at budgeted profit level 62% 56% Unit sales required to achieve budgeted profit of £600,000 (headsets) 7,223 6,516 In addition the following profit-volume chart has been produced: Profit volume chart £1,000,000 Current process profit/ (loss) New process profit/ (loss) £800,000 £600,000 £400,000 £200,000 £0 1,000 3,000 4,000 5,000 6,000 7,000 8,000 -£200,000 -£400,000 -£600,000 Output and sales (units) Profit/(loss)
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 7CE
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