Reference no: EM131258143

1. Elliott Incorporated manufactures garden tools, and although the manufacturing equipment is perfectly functional, it is not modern. 2. Upgrading to modern equipment would speed up the manufacturing process such that direct labor and variable manufacturing costs would be reduced by 40% on a per-unit basis. Hint: You do not need current units produced to calculate this problem. 3. The cost of such an upgrade would equal $1,500,000 per year for depreciation and financing costs net of tax benefits of these costs. 4. The additional costs would be accounted for as fixed manufacturing overhead. 5. Elliott is currently operating at full capacity and management believes they could increase sales to $6,000,000 at current prices if they had additional capacity. Elliott's current sales and costs are as follows: Sales $4,500,000 Direct materials 780,000 Direct labor 1,540,000 Manufacturing overhead–variable 364,500 Manufacturing overhead–fixed 750,000 Selling expenses–variable 90,000 Selling expenses–fixed 250,000 Administrative expenses–variable 60,000 Administrative expenses–fixed 200,000 a. Prepare a CVP for Elliott based on the current production. b. Compute contribution margin ratio for current production. c. Compute breakeven dollars for current production. d. Compute break even units for current production e. Determine sales required to eran Net Income of $1,000,000 based on current production information