Problem2 Upton Mfg has the following plans for the upcoming fiscal year: lMfg ha

Question

Problem2 Upton Mfg has the following plans for the upcoming fiscal year: lMfg has the following plans for the upcoming fiscal year Sales (1 million units) Cost of Goods Sold Operating Expense 16,640,000 0,816,000 3,494,400 3,244,800,00 698,880.00 Currently the fixed expense in the manufacturing costs is and the fixed expense in the operating costs is What is breakeven in sales dollars and units under this current plan? What must the company sell in order to make a $2,500,000 pre-tax profit? The company is considering having some of the machining done outside which will reduce fixed costs (in cost of goods sold) by $2,900,000 and increase variable costs by $1.00 per unit. If the company plans on selling a million units, should it make the change? Explain why or why not

Explanation / Answer

Total sales revenue    $16640,000 Sales units   1000,000 units Selling price per unit (16640,000 /1000,000) = $ 16.64 per unit Total Cost of goods sold 10,816,000 Less: Fixed cost 3,244,800 Variable cost of goods sold 7,571,200 (i.e. @7.5712 per unit) Total operating expense 3,494,400 Less: Fixed cost 698,880 Variable operating expense 2,795,520 (i.e. @ 2.7955 per unit) Contribution per unit: Selling price' 16.64 Less: variable cost per unit ( 7.5712+2.7955) 10.3667 Contribution per unit    6.2733 Break even in units = Total fixed cost / contribution per unit                                              ( 3244,800+ 698,880) / 6.2733 = 628,645 units Break even point in $ = Breakk even in units* Selling price per unit                                            = 628 645 units * 16.64 = $ 10460,653 Desired profit = $ 2500,000 Desired contribution ( 3244,800+ 698,880+ 2500,000) = $ 6443,680 Required sales in units = Desired contribution/ contribution per unit                                              ( 6443680 / 6.2733) = 1027,160 units Revised fixed cost = 3244800+698880-2900,000 = $ 1043,680 Revised variable cost per unit = 10.3667-1 = 9. 3667 Current net operating income: Sales 16,640,000 Less: COGS 10,816,000 Less: Operating expense 3,494,400 Net Operating income 2,329,600 Revised Net operating income: Sales 16,640,000 Less: Variable (1000,000 unts@ 9.3667) 9366700 Contribution 7,273,300 Less: Fixed cost revised 1,043,680 Revised Net operating income: 6,229,620 Increase in Net operating income by change 3,900,020 The company should make the change, as it will increased the net operating income by $ 3900,020

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