Reference no: EM133183107

Question - This year, Tanko Company sold 70,000 units its only product for $32 per unit. Manufacturing and selling the product required $140,000 of fixed manufacturing costs and $240,000 of fixed selling and administrative costs. Its per unit variable costs were as follows:

Materials $10.00

Direct labour $5.00

Variable overheads $2.00

Variable selling & administrative expenses $1.00

Next year, the company will use new material that is easier to work with. The new material will reduce material costs by 30% and direct labour costs by 40% and will not affect quality or marketability.

Management is considering an increase in the unit sales price to reduce the number of units sold because the factory's output is nearing its annual capacity of 80,000 units. Two plans are being considered:

Plan A- the company will keep the selling price at the current level and sell the same volume as last year.

Plan B- the company will increase selling price by 25%. This price will decrease unit sales volume by 10%.

Under both plans, fixed selling and administrative costs and all variable costs per unit will remain the same. However, under plan B, fixed manufacturing cost will increase by $25,000.

Required -

1. Determine the break-even points under Plan A and Plan B.

2. Determine the net income under Plan A and Plan B.

3. Using Excel, prepare a fully labelled breakeven chart for both plans (2 charts). Charts should display all major and minor gridlines.

4. Advise the company, based on your results for requirements 1 and 2.