Question

Lockhart Manufacturing Co. is manufacturing a new product for the following costs:
Direct materials per unit . . . . . . . . . . . . . . . . . . . $9
Direct labour per unit . . . . . . . . . . . . . . . . . . . . . . 1.2 DLH @ $14/DLH
Variable overhead per unit . . . . . . . . . . . . . . . . . 0.75 of direct labour costs
Fixed manufacturing costs . . . . . . . . . . . . . . . . . $1,108,000
Fixed selling and administrative costs. . . . . . . $1,685,000
Selling price per unit . . . . . . . . . . . . . . . . . . . . . . . $60
Variable selling costs per unit. . . . . . . . . . . . . . . $4
The production manager feels that savings could be achieved by automating the plant. If the plant was automated, the costs would change as follows:
Direct materials cost per unit. . . . . . . . . . . . . . $7.50
Direct labour per unit . . . . . . . . . . . . . . . . . . . . . 0.75 DLH @ $18/DLH
Variable overhead per unit . . . . . . . . . . . . . . . . 0.6 of direct labour costs
Fixed manufacturing costs . . . . . . . . . . . . . . . . $1,494,000
There would be no change to any other costs or to the selling price.
Required
1. Calculate the break-even point in annual unit sales for the new product if Lockhart
Manufacturing uses the
a. Current method of production.
b. Automated method of production.
2. Calculate the annual number of unit sales at which Lockhart Manufacturing would be indifferent about which manufacturing method is used. If demand exceeds this amount, which method of production should be used?
3. Identify four factors that Lockhart Manufacturing might consider before selecting either the current method of production or the automated method of production.


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  • CreatedJuly 08, 2015
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