Chapter IE, Problem 3IE

INTEGRATION EXERCISE 3 Absorption Costing. Variable Costing. Cost-Volume-Profit-Relationships LO5-4, LO5-5, LO5-7, LO6-1, LO6-2
Newton Company manufactures and sells one product The companyassembled the following projections for its first year of operations:

During its first year of operations Newton expects to produce 25,000 units and sell 20,000 units. The budgeted selling price of the company's only product is $66 per unit.
Required(answer each question independently by referring to the original data):

1. Assuming that Newton’s projections are accurate, what will be its absorption costing net operating income in its first year of operations?
2. Newton is considering investing in a higher quality raw material that will increase its direct materials cost by $1per unit.Itestimates that the higher quality raw material will increase sales by1,000 units. What will be the company’s revised absorption costing net operating income if it invests in the higher quality raw material and continues to produce25,000 units?
3. Newton is considering raising its selling price by $1.00 per unit with an expectation that it will lower unit sales by 1,500 units. What wall be the company’s revised absorption costing net operating income if itraises its price by $1.00 and continues to produce 25,000 units?
4. Assuming that Newton’s projections are accurate, what will be its variable costing net operating income in its first year ofoperations?
5. Newton is considering investing in a higher quality raw material that will increase its direct materials cost by $1 per unit. It estimates that the higher quality raw material will increase sales by1,000 units. What will be the company’s revised variable costing net operating income if it invests in the higher quality raw material and continues to produce25,000 units?
6. Newton is considering raising its selling price by $1.00 per unit with an expectation that it will lower unit sales by 1,500 units. What will be the company’s revised variable costing net operating income if it raises its price by $1.00 andcontinues to produce 25,000 units?
7. What is Newton's break-even point in unit sales? What is its break-even point in dollar sales?
8. Whatis the company’s projected margin of safety in its first year of operations?