1. Hurst Company manufactures and sells a single product. Price and cost data fo
ID: 2382090 • Letter: 1
Question
1. Hurst Company manufactures and sells a single product. Price and cost data for this product are as follows:
Selling price / unit $ 40.00
Variable manufacturing costs / unit 20.00
Variable selling expenses / unit 6.00
Fixed manufacturing overhead $ 208,000
Fixed administrative expenses 240,000
What is the break-even point in units?
a. 15,200 units
b. 26,600 units
c. 38,000 units
d. 32,000 units
e. none of the above
Please help me solve this problem by showing me the work.. Thanks
2. In the current year, the company sold 43,000 units. Due to competition, management will be forced to lower the selling price by 10% next year. How many units must be sold next year to earn the same income that was earned in the current year?
a. 50,000 units
b. 53,200 units
c. 58,800 units
d. 60,200 units
e. none of the above
3. Refer to the original data. During the current year, the company reported a net income of $56,000. Market Research shows that a new deluxe package , at an additional cost of $2 per unit will have great appeal. The new package, combined with an increased advertising expenditure of $88,000, will result in a 50% increase in unit sales. If the market research proposals are adopted , the net income will be:
a. $136,000
b. $112,000
c. $182,000
d. $64,000
e. none of the above
Explanation / Answer
1)What is the break-even point in units?BEP = Fixed cost / contribution per unit = (208000+240000)/(40-26) 32000 units option D is correct. 2)How many units must be sold next year to earn the same income that was earned in the current year Sold units = 43000 units. If Sold at Actual price, the Income earned is as below Income = 43000 x (40-26) - (208000+240000) = 154000 Target Profit = 154000 Sale price decreased by 10% = 40-4 = 36 Contribution Per unit = 36-26 = 10 Hence, Required units = (Fixed cost + Target profit )/Contribution per unit = (208000+240000+154000)/10 = 60200 units Hence, 60200 units are required Option D is correct 3)If the market research proposals are adopted , the net income will be:
Given net Income = 56000 Sale Units = (Fixed cost + Target profit )/Contribution per unit = (208000+240000+56000)/(40-26) = 36000 units sold Net Income on Sale of 36000 units adopting Market research = 36000 x 1.5 x (40-26-2) - 208000-240000-88000 = $112000 Option B is correct
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