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Compute the budgeted profit

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Question - A division of HP Company changed its production operation from one where a large labor force assembled electronic components to an automated production facility dominated by computers controllers robot. The change was necessary because of fierce competitive pressures Improvement in quality, reliability and flexibility of production schedule were necessary just to match the competititon. As a results of the change, variable cost fell and fixed costs increased as shown in the following assumed budget

                                                Old prod operation                                New production

Unit variable cost                                 

Material                                                .88                                                    .88

Labor                                                  1.22                                                    .22

Total per unit                                      2.10                                                  1.10

Montly fixed cost                       

Rent and depreciation                    450.000                                           875.000

Supervisor labor                               80.000                                           175.000

Other                                                 50.000                                             90.000

Total per month                             580.000                                         1.140.000

Expected volume is 600.000 units per month with each unit selling for 3.10. Capacity is 800.000 units

1. Compute the budgeted profit at the expected volume of 600.000 units under both the old and the new product?

2. Compute the budgeted break-even points under both the old and the new production?

3. Discuss the effect on profits if volume falls to 500.000 units under both the old and the production environment?

4. Discuss the effect on profits if volume increases to 700.000 units under both the old and the new production environment.

5. Comment on the reskiness of the new operation versus the old operation.

Reference no: EM131773312

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