Emporia Hornets Company manufactures and sells one product for $34 per unit. The company maintains no beginning or ending inventories and its relevant range of production is 20,000 units to 30,000 units When Emporia Hornets produces and sells 25,000 units, its unit costs are as shown in the table below: (Hint 1: within the relevant range, variable and fixed costs behave consistently. For example, a unit variable cost would be constant but a total variable cost would vary, and a unit fixed cost would vary but a total fixed cost would be constant. Hint 2: Each of the unit fixed costs in the table below are the average fixed manufacturing costs per unit when the production level is at 25,000 units. An average fixed cost per unit is the total fixed cost divided by the total number of units produced. You will need to compute a total fixed cost for each fixed cost item first and then to calculate a total fixed manufacturing cost, a total fixed period cost, or both.) Amount Per Unit Direct materials $ 8.00 Direct labor $ 5.00 Variable manufacturing overhead $ 1.00 Fixed manufacturing overhead $ 6.00 Fixed selling expense $ 3.50 Fixed administrative expense $ 2.50 Sales commissions $ 4.00 Variable administrative expense $ 1.00 Required: What is Emporia's (1) break-even point in unit sales? What is its (2) break-even point in dollar sales? (Do not round your intermediate values.) How much will Emporia's net operating income increase if it can grow production and sales from 25,000 units to 26,500 units? What is Emporia's margin of safety at a sales volume of 25,000 units? (Do not round your intermediate values.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Scenario:

Emporia Hornets Company manufactures and sells one product for $34 per unit. The company maintains no beginning or ending inventories and its relevant range of production is 20,000 units to 30,000 units When Emporia Hornets produces and sells 25,000 units, its unit costs are as shown in the table below: (Hint 1: within the relevant range, variable and fixed costs behave consistently. For example, a unit variable cost would be constant but a total variable cost would vary, and a unit fixed cost would vary but a total fixed cost would be constant. Hint 2: Each of the unit fixed costs in the table below are the average fixed manufacturing costs per unit when the production level is at 25,000 units. An average fixed cost per unit is the total fixed cost divided by the total number of units produced. You will need to compute a total fixed cost for each fixed cost item first and then to calculate a total fixed manufacturing cost, a total fixed period cost, or both.)

	Amount Per Unit
Direct materials	$ 8.00
Direct labor	$ 5.00
Variable manufacturing overhead	$ 1.00
Fixed manufacturing overhead	$ 6.00
Fixed selling expense	$ 3.50
Fixed administrative expense	$ 2.50
Sales commissions	$ 4.00
Variable administrative expense	$ 1.00

Required:

What is Emporia's (1) break-even point in unit sales? What is its (2) break-even point in dollar sales? (Do not round your intermediate values.)
How much will Emporia's net operating income increase if it can grow production and sales from 25,000 units to 26,500 units?
What is Emporia's margin of safety at a sales volume of 25,000 units? (Do not round your intermediate values.)

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