Flash Manufacturing Co. manufactures 1 GB flash drives (jump drives). Price and cost data for a relevant range extending to 600,000 units per month are as follows:
Sales prices per unit
(Current monthly sales volume is 400,000 units) $35.00
Variable costs per unit:
Direct materials 7.00
Direct labor 8.00
Variable manufacturing overhead 3.00
Variable selling and administrative expenses 2.00
Monthly fixed expenses:
Fixed manufacturing overhead $2,000,000
Fixed selling and administrative expenses $3,000,000
Required:
- What would the company's monthly operating income be if it sold 500,000 units?
- Management is currently in contract negotiations with the labor union. If the negotiations fail, direct labor costs will increase by 20% and fixed costs will increase by $400,000 per month. If these costs increase, how many units will the company have to sell each month to break even?
- Suppose Flash adds a second line of flash drives (2 GB rather than 1 GB). A package of the 2 GB flash drives will sell for $40 and have variable cost per unit of $30 per unit. The expected sales mix is five of the smaller flash drives (1 GB) for every two larger flash drive (2 GB). Given this sales mix, how many of each type of flash drive will Flash need to sell to reach its target after tax monthly income of $750,000? Fixed costs will remain the same. The tax rate for Flash is 40%.