Phoenix-based CompTronics manufactures audio speakers for desktop computers. The
ID: 2491514 • Letter: P
Question
Phoenix-based CompTronics manufactures audio speakers for desktop computers. The following data relate to the period just ended when the company produced and sold 43,000 speaker sets:
Sales $ 3,612,000
Variable costs 903,000
Fixed costs 2,250,000
Management is considering relocating its manufacturing facilities to northern Mexico to reduce costs. Variable costs are expected to average $16.00 per set; annual fixed costs are anticipated to be $1,992,000. (In the following requirements, ignore income taxes.)
(1) Calculate the company’s current income and determine the level of dollar sales needed to double that figure, assuming that manufacturing operations remain in the United States. (Do not round intermediate calculations and round your final answers to nearest whole dollar.)
Current income ____? Required dollar sales ____?
Determine the break-even point in speaker sets if operations are shifted to Mexico. (Do not round intermediate calculations and round your final answer up to nearest whole number.)
Breakeven point_____units?
Assume that management desires to achieve the Mexican break-even point; however, operations will remain in the United States.
If variable costs remain constant, by how much must fixed costs change? (Round your final answer to nearest whole dollar.)
Fixed costs_____by_____?
If fixed costs remain constant, by how much must unit variable cost change? (Do not round intermediate calculations and round your final answer to 2 decimal places.)
Variable costs_____by_____per unit?
(1) Calculate the company’s current income and determine the level of dollar sales needed to double that figure, assuming that manufacturing operations remain in the United States. (Do not round intermediate calculations and round your final answers to nearest whole dollar.)
Current income ____? Required dollar sales ____?
2.Determine the break-even point in speaker sets if operations are shifted to Mexico. (Do not round intermediate calculations and round your final answer up to nearest whole number.)
Breakeven point_____units?
3.Assume that management desires to achieve the Mexican break-even point; however, operations will remain in the United States.
If variable costs remain constant, by how much must fixed costs change? (Round your final answer to nearest whole dollar.)
Fixed costs_____by_____?
b.If fixed costs remain constant, by how much must unit variable cost change? (Do not round intermediate calculations and round your final answer to 2 decimal places.)
Variable costs_____by_____per unit?
Explanation / Answer
1) Data is summarized as Number of units sold 43000 Sales 3612000 Less: Variable cost 903000 = Contribution 2709000 Less: Fixed costs 2250000 Operating Income ( current income) 459000 Desired profit = 2 x 459000 = 918000 PV Ratio = Contribution / Sales = 2709000 / 3612000 = 75 % Sales to earn profit of 918000 can be calculated as = (Desired Profit + Fixed costs) / PV Ratio = (918000 + 2250000) / 75% 4224000 Current Income = 459000 Required Dollar sales = 4224000