Reference no: EM132863568

Question - Arturito, the production manager of MoneyHays, Inc. has determined that they are already operating at a full capacity of 40,000 units. Berlin, the sales manager, called during the day that a special order of 25,000 units was requested by a notable customer. Arturito explained the they are already operating at full capacity. The two managers met with the Company's management accountant and explained the situation. According to the managerial accountant, there are several possible ways in order for them to deliver the special order outside the full capacity, namely:

Rent-additional equipment that would add P500,000 to the monthly fixed costs and increase the Company's production capacity to 100,000 units.

Render overtime hours to produce the special order. With the current workforce of the Company, any units produced above the initial capacity of 40,000 units will require an additional 20% of the hours required per unit. The current workforce of the Company, including overtime, is able to handle equipment to produce an additional 60,000 units. Above this threshold additional workers are needed.

Purchase additional equipment costing P1,000,000. The company uses the straight-line method of depreciation. This would increase the Company's production capacity by 250,000 units.After hours of brainstorming, the managers and the accountant think that it would be best if they would rent out temporary equipment and have the workers render overtime hours.

The company sells its product for P120, while the following were the current production costs of MoneyHays:

Manufacturing costs Costs

Direct Material P20 per unit

Direct labor P8 per DL hours

Variable overhead P12 per unit

Monthly Fixed overhead P1,700,000

DL Hours per unit 3 hours

Fixed selling and administrative expenses amounted to P6,000,000 for the year.

1) What is the new monthly break-even point?

2) If the additional 25,000 units will be produced. What will be the prime costs of the Company?