Question

LUST-VOLUME PROFT AMALYSIs even and cost-volume-proflt analysis. Hewtex Electronics produces ers and electronic calcu ators, Its 19A Income statement follows 719 249. Break-even ctronics produces and markets Hanrex Electrorics ncome Statment For Yesr Ended December 31.194 TAPE RecoROEAS Total ELECTRONIC CA CULATOns Per 000s Omitted) Total Par Unt 1900s Omitted) Unit (000s Omitted) Sales $1.050 315003.150 $22.50 S4.200 0 Production costs Materials Direct labor Variable factory overhead Fixed factory overhead. 280 403 450 910.0 580.0 420.0 280.0 2.00 200 3.00 2.00 140 280 Total production cost..630 Gross profit.. Fixed marketing and administrative expenses Income before incomea Income tax (55%) Net income ". . $800 1540 $2,170.0 ....S 420 S600 $10$11.50 $2.030.0 1,040.0 $ 990.0 544.5 S 4455 The tape recorder business has been fairly stable in ręcent years, and the company has no turation, management has decided to reduce its calculator price to $20. effective January 1, 198 ans to change the tape recorder price. However, because of increasing competition and market and to spend an additional $57,000 in 19B for advertising. As a result, Hewtex estimates that 80% of its 19B revenue will be from electronic calculator sales. The sales units mix tor tape recorders calculators is expected to be 1.2 in 19A and 1.3 in 19B at ali volume levels. Materials costs are expected to drop 10% and direct labor costs are to increase 10%. Required: 20% for the tape reco rders and calculators, respectively; however, all (1) The number of tape recorders and electronic calculators to break even, using 19A data. (2) Sales dollars required to earn an aftertax profit of 9% on sales, using 198 estimates. (3) The number of tape recorders and electronic calculafors io break even, using 19B es- (CMA adapted) timates

Answer 1

(1) At the Break-even point

The number of Tape Recorder=40,000 units (See note below)

The number of Electronic Calculators=80,000 units (See note below)

Note

Total Fixed Overheads

Fixed factory overheads                                       $ 280,000

Fixed Marketing &Administrative expenses $1040,000

Total Fixed Overheads                                        $1320,000

Contribution per unit

Particulars	Tape Recorder	Electronic Calculators
Selling price	$15	$ 22.50
Less: Variable Cost	$ 8	$ 9.50
Contribution per unit	$ 7	$ 13.00
Number of units	X	2X
Total Contribution	$ 7X	$26X

At the Break-even point:

Total Contribution= Total Fixed Cost

$7x+$26x=$ 1320,000

Therefore X=$1320,000/$ 33

X= 40,000

The number of Tape Recorder=40,000 units

The number of Electronic Calculators=80,000 units

(2)Sales required to earn an after tax profit of 9% on sales is as follows:(as per 19B)

Number of Tape Recorder units=54000 units (See Note below)

Number of Electronic calculators=162000 units(See Note below)

NOTE

Sales required of tape recorder=X units

Sales required of Electronic calculator=3X units

Particulars	Tape Recorder	Electronic Calculators
Selling price	$ 15	$ 20
Less: Variable Cost	$ 7.80	$ 8.90
Contribution per unit	$ 7.20	$ 11.10
Number of units	X	3X
Total Contribution	$ 7.20X	$ 33.30 X

Total Contribution margin=$ 7.20X+$ 33.30 X=$ 40.50 X

Total Fixed Costs:

Fixed factory overheads                               $ 280,000

Fixed Marketing &Administrative expenses $1097,000

Total Fixed Overheads                                 $1377,000

Profit before tax=$40.50X-$ 13,77,000

Profit after Tax=0.45($40.5X-$13,77000)=0.09($15X+60X)

$40.5X-$1377000=$15X

Therefore $25.5X=$13,77,000

X=54000 units

3X=162000 units

(3)At the Break-even point as per 19B

The number of Tape Recorder=34,000 units(see note below)

The number of Electronic Calculators= 102,000 units(see note below)

NOTE:

Direct material$3.60+direct labor $2.20+variable overheads $2=$7.80(see Note 1)

Direct material$3.60+direct labor $3.30+variable overheads $2=$ 8.90(see Note 2)

Particulars	Tape Recorder	Electronic Calculators
Selling price	$ 15	$ 20
Less: Variable Cost Note3(see note 1 and note 2)	$ 7.80	$ 8.90
Contribution per unit	$ 7.20	$ 11.10
Number of units	X	3X
Total Contribution	$ 7.20X	$ 33.30 X

Total Fixed Costs:

Fixed factory overheads                               $ 280,000

Fixed Marketing &Administrative expenses $1097,000

Total Fixed Overheads                                 $1377,000

At the break Even point

Total Contribution= Total Fixed Cost

$7.20x+$33.30x=$ 1377000

$40.50=$ 1377000

X=34000 units

3x=102000 units