Question

Lauren Tarson and Michele Progransky opened Top Drawer Optical seven years ago with the goal of producing fashionable and affordable eyewear. Tarson and Progransky have been very pleased with their revenue growth. One particular design, available in plastic and metal, has become one of the company’s best sellers. The following data relate to this design:


Currently, the company produces exactly as many frames as it can sell. Therefore, it has no opportunity to substitute a more expensive frame for a less expensive one. Top Drawer Optical’s annual fixed costs are currently $1.225 million.

Required
Each of the following questions relates to an independent situation.
A. Calculate the total number of frames that Top Drawer Optical needs to produce and sell to break even.
B. Calculate the total number of frames that Top Drawer Optical needs to produce and sell to break even if budgeted direct material costs for plastic frames decrease by $10 and annual fixed costs increase by $12,500 for depreciation of a new production machine.
C. Tarson and Progransky have been able to reduce the company’s fixed costs by eliminating certain unnecessary expenditures and downsizing supervisory personnel. Now, the company’s fixed costs are $1,122,000. Calculate the number of frames that Top Drawer Optical needs to produce and sell to break even if the company sales mix changes to 35 percent plastic frames and 65 percent metalframes.


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  • CreatedMarch 11, 2015
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