Reference no: EM132520725

Techno Co., a retailer of refurbished computers, has been in operation for one year. The computers cost Techno $100 to purchase and require 10 hours of labour time, at $15 per hour, to refurbish. Variable costs, in addition to the purchase cost and the direct labour cost, equal $50 per computer. The newly refurbished computers are sold to customers for $600. Rent and other fixed costs equal $90,000 per year. Last year the company sold 360 computers which generated sales of $216,000 and operating income of $18,000:

REQUIRED:

Question a. Calculate the company's breakeven point in number of computers and sales dollars.

Question b. Calculate the company's margin of safety last year in dollars and as a percentage of sales.

Question c. Refer to the original data. How many computers would the company have to sell to earn income after taxes of $21,000? The company's tax rate is 30 percent.

Question d. Refer to the original data. Techno management is of the opinion that spending $8,000 on radio and newspaper advertisements plus the payment of a $5 commission per computer sold would increase next year's sales to 400 computers. Should the company implement this plan?

Question e. Refer to the original data. Techno is considering selling refurbished cell phones, in additionto refurbished computers. They can purchase used cell phones for $25, refurbish them at a cost of $15 per phone and sell them for $60. The company does not expect to incur any additional fixed costs if they start selling refurbished cell phones. Techno anticipates that they will be able to sell 2,000 cell phones next year and computer sales will remain at 360 units. What will the company's breakeven point, in sales dollars, equal if they add the new product line?