Parkins Company produces and sells a single product. The company\'s income state
ID: 2452657 • Letter: P
Question
Parkins Company produces and sells a single product. The company's income statement for the most recent month is given below: Sales (6,000 units at $40 per unit)---------- $240,000 Less manufacturing costs: Direct materials-----------------------$48,000 Direct labor (variable)---------------- 60,000 Variable factory overhead------------ 12,000 Fixed factory overhead--------------- 30,000 ---------------- Gross margin---------------------------- 90,000 Less selling and other expenses: Variable selling and other expenses 24,000 Fixed selling and other expenses 42,000 66,000 ------------ Net operating income----------------- $24,000 There are no beginning or ending inventories. Required: a. Compute the company's monthly break-even point in units of product. b. What would the company's monthly net operating income be if sales increased by 25% and there is no change in total fixed expenses? c. What dollar sales must the company achieve in order to earn a net operating income of $50,000 per month? d. The company has decided to automate a portion of its operations. The change will reduce direct labor costs per unit by 40 percent, but it will double the costs for fixed factory overhead. Compute the new break-even point in units.
Explanation / Answer
Answer:a The company's income statement in contribution format would be:
The break-even point in units would be: $72,000 / $16 per unit = 4,500 units
Answer:b 6,000 units * 125% = 7,500 units
Answer:c ($72,000 + $50,000) / 0.40 = $305,000
Answer:d: Direct labor costs are presently $10 per unit ($60,000 ÷ 6,000 units) and will decrease by $4 per unit ($10 × 40%). Therefore, the company's new cost structure will be:
((2 × $30,000) + $42,000) ÷ $20 per unit = 5,100 units
Particulars Amount ($) Sales 240000 Less: Variable expenses: Direct Material 48000 Direct Labor 60000 Variable Factory overhead 12000 Variable selling & administrative exp 24000 144000 Contribution margin 96000 Fixed expenses: Fixed factory overhead 30000 Fixed selling and other expense 42000 72000 Net operating income 24000