Problem:
1. Parkins Company produces and sells a single product. The company's income statement for the most recent month is given below:
|
Sales (6,000 units at $40 per unit)
|
$240,000
|
|
Less manufacturing costs:
|
|
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Direct materials
|
$48,000
|
|
Direct labor (variable)
|
60,000
|
|
Variable factory overhead
|
12,000
|
|
Fixed factory overhead
|
30,000
|
150,000
|
|
Gross margin
|
|
90,000
|
|
Less selling and other expenses:
|
|
|
|
Variable selling and other expenses
|
24,000
|
|
|
Fixed selling and other expenses
|
42,000
|
66,000
|
|
Net operating income
|
|
$ 24,000
|
There are no beginning or ending inventories.
Required:
a. Compute the company's monthly break-even point in units of product.
b. What would the company's monthly net operating income be if sales increased by 25% and there is no change in total fixed expenses?
c. What dollar sales must the company achieve in order to earn a net operating income of $50,000 per month?
d. The company has decided to automate a portion of its operations. The change will reduce direct labor costs per unit by 40 percent, but it will double the costs for fixed factory overhead. Compute the new break-even point in units.