Cabot Electronics produces and markets tape recorders and electronic calculators. Its 20A income statement is presented below.
The tape recorder business has been fairly stable in recent years, and the company has no plans to change the tape recorder price. However, because of increasing competition and market saturation, management has decided to reduce its calculator price to $20, effective January 1, 20B, and to spend an additional $57,000 in 20B for advertising. As a result, the company estimates that 80% of its 20B revenue will be from electronic calculator sales. The sales units mix for tape recorders and calculators was 1:2 in 20A and is expected to be 1:3 in 20B at all volume levels. For 20B, materials costs are expected to drop 10% and 20% for the tape recorders and calculators, respectively; however, all direct labor costs are to increase 10%.

Required:
(1) Compute the number of tape recorders and electronic calculators that must be sold to break even, using 20A data.
(2) Determine the sales dollars required to earn an after tax profit of 9% on sales, using 20B estimates.
(3) Compute the number of tape recorders and electronic calculators that must be sold to break even, using 20B estimates.

Transcribed Image Text:

Cabot Electronics Income Statement For the Year Ending December 31, 20A Tape Recorders Total Electronic Calculators Total (in thousands) Unit in thousands) Unit in thousands) Per Per Total 050 15.00 $3,150 $22.50 $4.200.00 Production costs Materials Direct labor Variable factory overhead. Fixed factory overhead. $ 280 140 140 4.00 2.00 2.00 1.00 630 420 4.50 910.00 560.00 420.00 3.00 2.00 280 63000210 $ 6.00 70 280.00 1,540 S11.00 $2,170.00 ,610 S 11.50 $2.030.00 1.50 Total production cost... $ 630 $ 420 S 9.00 Gross profit.3 Fixed marketing and -- administrative expenses Income before income tax.... Income tax (55%) Net income .1.040.00 990.00 544.50