Reference no: EM132757745

QUESTION A: Corrigan Enterprises is studying the acquisition of two electrical component insertion systems for producing its sole product, the universal gismo. Data relevant to the systems follow.

Model no. 6754: Variable costs, $18.00 per unit Annual fixed costs, $986,100

Model no. 4399: Variable costs, $10.80 per unit Annual fixed costs, $1,114,500

Corrigan's selling price is $63 per unit for the universal gismo, which is subject to a 5 percent sales commission. (In the following requirements, ignore income taxes.)

Required -

1. How many units must the company sell to break even if Model 6754 is selected?

2. Calculate the net income of the two systems if sales and production are expected to average 48,000 units per year.

3. Which of the two systems would be more profitable? Model No. 6754 or Model No. 4399?

4. Assume Model 4399 requires the purchase of additional equipment that is not reflected in the preceding figures. The equipment will cost $450,000 and will be depreciated over a five-year life by the straight-line method. How many units must Corrigan sell to earn $972,000 of income if Model 4399 is selected? As in requirement (2), sales and production are expected to average 48,000 units per year.

5. Ignoring the information presented in part (4), at what volume level will the annual total cost of each system be equal?

QUESTION B: CollegePak Company produced and sold 83,000 backpacks during the year just ended at an average price of $43 per unit. Variable manufacturing costs were $18.50 per unit, and variable marketing costs were $4.72 per unit sold. Fixed costs amounted to $553,000 for manufacturing and $226,400 for marketing. There was no year-end work-in-process inventory. (Ignore income taxes.)

Required -

1. Compute CollegePak's break-even point in sales dollars for the year.

2. Compute the number of sales units required to earn a net income of $605,000 during the year.

3. CollegePak's variable manufacturing costs are expected to increase by 10 percent in the coming year. Compute the firm's break-even point in sales dollars for the coming year.

4. If CollegePak's variable manufacturing costs do increase by 10 percent, compute the selling price that would yield the same contribution-margin ratio in the coming year.