Answered: HITECH ELECTRONICS Projected Earnings…

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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Question

HiTech Electronics manufactures two new products,
Tablets and
Touch Screen Remotes, and sells them nationally to wholesalers and
retailers. The HiTech management is very pleased with the company’s
performance for the current fiscal year. Projected sales through
December 31, 2022, indicate that 70,000
Tablets and 140,000
Remotes
will be sold this year. The projected earnings statement, which appears
below, shows that HiTech will exceed its earnings goal of 9 percent on
sales after taxes.
The Tablet business has been fairly stable for the last few years,
and the company does not intend to change the Tablet price. However,
the competition among manufacturers of Touch Screen Remotes has been
increasing. HiTech’s
Remotes have been very popular with consumers.
In order to sustain this interest in their
Remotes and to meet the price
reductions expected from competitors, management has decided to reduce
the wholesale price of its calculator from $22.50 to $20.00 per unit
effective January 1, 2023. At the same time the company plans to spend
an additional $57,000 on advertising during the fiscal year 2023. As a
consequence of these actions, management estimates that 80 percent of
its total revenue will be derived from
Remote sales as compared to 75
percent in 2022. As in prior years, the sales mix is assumed to be the
same at all volume levels.
The total fixed overhead costs will not change in 2023, nor will the
variable overhead cost rates (applied on a direct labor hour base).
However, the cost of materials and direct labor is expected to change.
The cost of solid-state electronic components will be cheaper in 2023.
HiTech estimates that material costs will drop 10 percent for the
Tablets
and 20 percent for the
Remotes in 2023. However, direct labor costs for
both products will increase 10 percent in the coming year.Required:
1. How many
Tablets and
Remote units did HiTech Electronics have to
sell in 2022 to break even?
2. What volume of sales is required if HiTech Electronics is to earn a
profit in 2023 equal to 9 percent on sales after taxes.
3. Derive the equation describing the level of profits in 2023 as a
function of the number of
Tablets and
Remotes sold.
4. Plot the breakeven line and the line representing a profit of 9
percent of sales after taxes.

HITECH ELECTRONICS
Projected Earnings Statement
For the Year Ended December 31, 2022
Tablets Touch Screen Remotes Combined
Total
(in ’000s)
Per
unit
Total
(in ’000s)
Per unit Total
(in ’000s)
Sales $1,050 $15.00 $3,150 $22.50
Production costs:
Materials 280 4.00 630 4.50 910.00
Direct labor 140 2.00 420 3.00 560.00
Var. Overhead 140 2.00 280 2.00 420.00
Fixed Overhead 70 1.00 210 1.50 280.00
Total production Costs $ 630 $9.00 $1,540 $ 11.00 $2,170.00
Gross margin $ 420 $6.00 $1,610 $ 11.50 $2,030.00
Fixed selling and Administrative 1,040.00
Net income before Income Taxes 990.00
Income taxes (55%) 544.50