Question

Check my Our team is hired by Apple to help assess whether or not to continue to manufacture and sell an older model of the IPhone Apple explains that this model continues to sell well in foreign markets but it worries that fixed costs are so large that it is difficult to earn profit. The Tableau Dashboard is provided to aid our analysis of this model. Total Fixed Costs Factory rent expense Insurance expense Equipment depreciation expense Production manager salaries Advertising expense 23 of 27 !!! s Prey Next >

Factory Rent Expense: $10,250,000

Insurance Expense: $6,000,000

Equipment Depreciation Expense: $5,350,000

Production Manager Salaries: $8,500,000

Advertising Expense: $5,000,000

Battery: $10

Camera: $45

Internal Components: $90

Receiver: $35

Screen: $95

Speaker: $25

Sales Price Per Unit: $750

Answer 1

Computation of Variable cost per unit Battery Camera Internal components Reciever Screen Speaker Total Variable cost 10.00 45.00 90.00 35.00 95.00 25.00 300.00 per unit $ $ Computation of Total Fixed Costs Factory Rent Production Manager's Salary Insurance Depreciation Advertisement Expense Total Fixed Costs $ 1,02,50,000 85,00,000 60,00,000 53,50,000 50,00,000 3,51,00,000 $ $ 750 Sale price per unit less: Variable cost per unit Contribution per unit 300 $ 450 Break Even sales (units) = Fixed cost / contribution per unit = $35,100,000 / $450 78000 units Solution 1 Margin of Saftey Units sold - break even sales = 100000 units - 78000 units 22000 units Margin of Saftey 22000 x $750 = $ 1,65,00,000 Margin of Saftey (% of Sales) = Margin of saftey / Actual sales *100 = 22000/100000 *100 22.00%

Solution 2Aif Apple does not purchase the machinery Computation of Net Income Sales ( 100000 units @ $750) $ 7,50,00,000 less: Variable costs (100000 x $300) $ 3,00,00,000 Contribution Margin $ 4,50,00,000 less: Fixed Costs $ 3,51,00,000 Net Income $ 99,00,000 $ 260.00 Solution 2B if Apple purchases the machinery Variable cost per unit ($300-$40) Revised Fixed costs : Original - $35,100,000 Additional - $7,500,000 $ 4,26,00,000 Computation of Net Income Sales (100000 units @ $750) less: Variable costs (100000 x $260) Contribution Margin less: Fixed Costs Net Income $ $ $ $ $ 7,50,00,000 2,60,00,000 4,90,00,000 4,26,00,000 64,00,000

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