Parkins Company produces and sells a single product. The company's income statement for the most recent month is given below:
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Sales (6,000 units at $40 per unit)
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$240,000
|
|
Less manufacturing costs:
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|
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Direct materials
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$48,000
|
|
Direct labor (variable)
|
60,000
|
|
Variable factory overhead
|
12,000
|
|
Fixed factory overhead
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30,000
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150,000
|
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Gross margin
|
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90,000
|
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Less selling and other expenses:
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|
|
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Variable selling and other expenses
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24,000
|
|
|
Fixed selling and other expenses
|
42,000
|
66,000
|
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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.