Reference no: EM132584381

RadCliff Inc manufactures and sells a single product. Current sales are 12,000 units per year. Data for the current year is reflected below.

Selling Price per Unit $75

Manufacturing Costs

Direct Materials $15 per unit

Direct Labor $8 per unit

Variable Overhead $4 per unit

Fixed Overhead $200,000 per year

Non-Manufacturing Costs

Variable selling and administrative $3 per unit

Fixed selling and administrative $250,000 per year

REQUIRED:

Question 1: Compute the number of units that RadCliff must sell annually to break-even

Question 2: Compute the dollar margin of safety

The company is considerable implementing the following simultaneous changes.

• Reduce the selling price per unit to $72.00
• Increase advertising budget which will increase the fixed selling expenses by $20,000 per year.
• Use a new supplier of materials. Direct material costs will decrease by 20% by using the new supplier.
• If these changes are implemented, the company believes that units sold will increase from 12,000 units to 15,000 units per year.

Question 3: Compute the new break-even point in units

Question 4: Compute the new dollar margin of safety

Question 5: Compute the change in net operating income

Question 6: Would you advise management to implement these changes? Why or why not?