Deng Corp. produces hydraulic lifts that are used by hospitals to move bedridden

Question

Deng Corp. produces hydraulic lifts that are used by hospitals to move bedridden patients. The costs of manufacturing and marketing the hydraulic lifts at the company’s standard normal volume of 4,200 units per month are as follows:

  

At a sales price of $6,230 per unit, calculate (a) the break-even volume in units and (b) the break-even sales in dollars. (Round up "Break-even volume in units" to the next whole number. Do not round other intermediate calculations.)

A) What is the break even Volume in units?

B) What is the break even sales in dollars?

Market research indicates that, if the unit sale price were reduced from $6,230 to $5,730, the monthly sales volume would increase to 4,700 units, which is well within production capacity limitations. Assuming the same cost patterns as shown above, what would be the dollar impact on monthly sales, costs, and income?

FILL IN THE CELLS

Deng is considering implementing a quality inspection system, which will increase the fixed manufacturing overhead costs per unit to $550. However, this will reduce the average materials, labour, and variable overhead costs by $11, $21, and $13 per unit, respectively. Compute the new break-even sales in units and dollars. At a sales level of 4,200 units, will the implementation of the quality inspection system result in a higher profit? Compute the profit impact of this change at a sales level of 4,700 units.(Round up "Break-even volume in units" to the next whole number. Do not round other intermediate calculations.)

FILL IN THE CELLS

4a) What is the break even Volume in units?

4b) What is the break even sales in dollars?

Deng Corp. produces hydraulic lifts that are used by hospitals to move bedridden patients. The costs of manufacturing and marketing the hydraulic lifts at the company’s standard normal volume of 4,200 units per month are as follows:

Explanation / Answer

1. Cost Sheet

Breakeven Volume = 5901000/4290 = 1375.52 units

Breakeven point in $ = 1375.52*6230 = $8569490

2.

3.

Income Level prior to Quality related changes:

Income level after Quality related changes:

Break even Volume in Units (4200units sale) = 8211000/4590 = 1788.89 units

Break even point in $ (4200units sale) = 1788.89*6230 = $11144777.78

Break even volume in Units (4700units sale) = 8486000/4090 = 2074.82 units

Break even point in $ (4700units sale) = 2074.82*5730 = $11888700

$ Selling Price 6230 - Variable Materials -510 - Variable labor -765 - Variable Overheads -410 - Variable Marketing costs -255 Contribution per unit 4290 Pv ratio 68.86% Fixed Cost: Fixed manufacturing Cost(4200*720) 3024000 Fixed Marketing cost(4200*685) 2877000 Total Fixed Cost 5901000

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