Reference no: EM132624987

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, $16.00 per unit Annual fixed costs, $985,600

Model no. 4399: Variable costs, $12.80 per unit Annual fixed costs, $1,113,600

Corrigan's selling price is $64 per unit for the universal gismo, which is subject to a 5 percent sales commission. (In the following requirements, ignore income taxes.)

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

Question 2-a. Calculate the net income of the two systems if sales and production are expected to average 46,000 units per year.

Question 3. 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 $956,400 of income if Model 4399 is selected? As in requirement (2), sales and production are expected to average 46,000 units per year.

Question 4. Ignoring the information presented in part (3), at what volume level will the annual total cost of each system be equal?