Phoenix-based CompTronics manufactures audio speakers for desktop computers. The
ID: 442435 • 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 $1,994,000. (In the following requirements, ignore income taxes.)
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? (Do not round intermediate calculations and round your final answer to nearest whole dollar.)
3.Assume that management desires to achieve the Mexican break-even point; however, operations will remain in the United States.
Explanation / Answer
Number of units sold, N=43,000
Sales in dollars, R=$3,612,000
Variable Costs= $903,000
Fixed Costs= $2,250,000
At new facility
Variable cost per unit = $16
Fixed cost= $1,994,000
To calculate Mexican breakeven
Price per unit is
P = 3,612,000/43000 = $84
Variable cost per unit , VCPU = 16
Break even quantity = (1994000)/(84-16) = 29324... Break even quantity in Mexico
For US if the Mexican break even is to be achieved
Break even Quantity = (FC)/(P-VCPU)
The variable cost per unit in US = 903000/43000 = $21
Break even quantity = 29324 = (FC)/(84-21)
FC= $1,847,412
Initial fixed cost = $2,250,000 then
Reduction in Fixed cost required = 2,250,000-1,847,412 = $402,588