Reference no: EM132497348

Brooks company manufactures furniture including tables. You have been provided with the information below for the table production line (maximum capacity is 12000 tables per year). Starting & ending inventory Nil Wood 35 per unit Other materials 2 per unit Material handling 20 000 estimated costs per year Direct labor 20 per unit Line supervisor 40 000 estimated costs per year Line equipment depreciation 30 000 estimated costs per year Share of factory rent 50 000 estimated costs per year Shipping costs 8 per unit Sales commissions 5 per unit Share of General & administrative expenses 60 000 estimated costs per year Share of Marketing & sales expenses 50 000 estimated costs per year Sales price 110 per unit Assignment:

Question 1. Make marginal costing P&L assuming the company plans to produce and sell 9000 tables.

Question 2. Calculate the break-even point in volume (units to sell) and in value (euros to sell). Calculate the margin of safety, the safety index and the operating leverage. Comment your results.

Question 3. Assume that sales increase by 19 800 euros next year (more units sold - no change to unit selling price). If cost behaviour patterns remain unchanged, by how much will the net income increase? Use at least 2 different methods to find the answer

Question 4. Refer to original data. Assume that management wants the company to earn a minimum profit of 255 000 euros. How many units would have to be sold to meet this target? Do you think it is achievable?

Question 5. The company is contemplating the use of quality inspection. This will increase variable costs per unit by 2 euros, but will reduce G&A expenses by 15 000 euros. Calculate the level of sales that would generate more operating profit with the quality inspection than without. What is the operating profit at that level of sales? 6. Would you recommend that the company implements this change? Why?