Estonia Inc manufactures and sells a single product. Current sales are 11,000 units per year. Data...

 

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Estonia Inc manufactures and sells a single product. Current sales are 11,000 units per year. Data for the current year is reflected below. Selling Price per Unit $50 Manufacturing Costs Direct Materials Direct Labor Variable Overhead Fixed Overhead Non-Manufacturing Costs Variable selling and administrative. Fixed selling and administrative $6 per unit $3 per unit $2 per unit $220,000 per year $2 per unit $120,000 per year REQUIRED: 1. Compute the number of units that the company must sell annually to break-even. SHOW YOUR WORK 2. Compute the dollar margin of safety. SHOW YOUR WORK 3. The company is considerable implementing the following simultaneous changes. • Reduce the selling price per unit to $48.00 • Increase advertising budget which will increase the fixed selling expenses by $20,000 per year. • Use a new supplier of materials. Direct material costs will decrease by 30% by using the new supplier. If these changes are implemented, the company believes that units sold will increase from 11,000 units to 15,000 units per year. • Compute the new break-even point in units. SHOW YOUR WORK • Compute the new dollar margin of safety. SHOW YOUR WORK • Compute the change in net operating income. SHOW YOUR WORK Would you advise management to implement these changes? Why or why not? Estonia Inc manufactures and sells a single product. Current sales are 11,000 units per year. Data for the current year is reflected below. Selling Price per Unit $50 Manufacturing Costs Direct Materials Direct Labor Variable Overhead Fixed Overhead Non-Manufacturing Costs Variable selling and administrative. Fixed selling and administrative $6 per unit $3 per unit $2 per unit $220,000 per year $2 per unit $120,000 per year REQUIRED: 1. Compute the number of units that the company must sell annually to break-even. SHOW YOUR WORK 2. Compute the dollar margin of safety. SHOW YOUR WORK 3. The company is considerable implementing the following simultaneous changes. • Reduce the selling price per unit to $48.00 • Increase advertising budget which will increase the fixed selling expenses by $20,000 per year. • Use a new supplier of materials. Direct material costs will decrease by 30% by using the new supplier. If these changes are implemented, the company believes that units sold will increase from 11,000 units to 15,000 units per year. • Compute the new break-even point in units. SHOW YOUR WORK • Compute the new dollar margin of safety. SHOW YOUR WORK • Compute the change in net operating income. SHOW YOUR WORK Would you advise management to implement these changes? Why or why not?

Answer rating: 100% (QA)

1 Compute the number of units that the company must sell annually to breakeven Fixed Costs Total Fixed Manufacturing Costs Total Fixed Selling and Adm... View the full answer