Reference no: EM132527906

Electron Company is a semiconductor company based in Wollongong. In the first year of its operations in 2019, it produced a new router system for its corporate clients. The average wholesale selling price of the system is $1,500 each. Electron's actual 2019 costs are:

Variable cost per unit

Direct materials $110

Direct manufacturing labour $90

Manufacturing overhead $240

                                   $440

Fixed costs

Manufacturing costs $1,500,000

Administration and marketing $750,000

                                     $2,250,000

• During 2019, Electron Company produced 12,000 units and 9,000 of which were sold by the end of year resulting in an ending inventory of 3,000 units at the end of the year.

Required:

Question (a) What is the current breakeven point of the company in units?

Question (b) How many units the company needs to sell next year to make a profit of $900,000?

Question (c) Compute the number of units required to make a profit of $1,000,000 in the next year if the company adopted the following proposal to adjust both unit selling price and costs. The proposed new selling price is $1,400 and the variable cost per unit is expected to be reduced by $40 by installing more efficient equipment costing $250,000. (Round to the nearest unit).

Question (d) Prepare income statement using variable costing method and absorption costing method and explain the difference between the income reported by variable and absorption costing.