Question: Hewtex Electronics manufactures two products tape recorders an

Hewtex Electronics manufactures two products - tape recorders and electronic calculators - and sells them nationally to wholesalers and retailers. The Hewtex management is very pleased with the company's performance for the current fiscal year. Projected sales through December 31, 20x7, indicate that 70,000 tape recorders and 140,000 electronic calculators will be sold this year. The projected earnings statement follows:

It shows that Hewtex will exceed its earnings goal of 9% on sales after income taxes.
The tape recorder business has been fairly stable the last few years, and the company does not intend to change the tape recorder price. Competition among manufacturers of electronic calculators has been increasing, however. Hewtex's calculators have been very popular with consumers. In order to sustain this interest in their calculators and to meet the price reductions expected from competitors, management has decided to reduce the wholesale price of its calculator from $22.50 to $20.00 per unit effective January 1, 20x8. At the same time, the company plans to spend an additional $57,000 on advertising during fiscal year 20x8. As a consequence of these actions, management estimates that 80% of its total revenue will be derived from calculator sales compared to 75% in 20x7. As in prior years, the sales mix is assumed to be the same at all volume levels. The total fixed overhead costs will not change in 20x8, nor will the variable overhead cost rates (applied on a direct labor hour base). However, the cost of materials and direct labor is expected to change. The cost of solid-state electronic components will be cheaper in 20x8. Hewtex estimates that material costs will drop 10% for the tape recorders and 20% for the calculators in 20x8. Direct labor costs for both products will increase 10% in the coming year, however.
What volume of sales is required if Hewtex Electronics is to earn a profit in 20x8 equal to 9% on sales after incometaxes?

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  • CreatedAugust 05, 2013
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