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Computing budgeted profit at the expected volume

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Reference no: EM13142152

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 effecr 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: EM13142152

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