HITECH ELECTRONICS Projected Earnings Statement For the Year Ended December 31, 2022 Tablets Touch Screen Remotes Combined Total Per Total Per unit (in '000s) unit (in '000s) 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 Income taxes (55%) Net Income 990.00 544.50 $ 445.50
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
Required:
-
How many Tablets and Remote units did HiTech Electronics have to sell in 2022 to break even?
-
What volume of sales is required if HiTech Electronics is to earn a profit in 2023 equal to 9 percent on sales after taxes.
-
Derive the equation describing the level of profits in 2023 as a function of the number of Tablets and Remotes sold.
-
Plot the breakeven line and the line representing a profit of 9 percent of sales after taxes.
Step by step
Solved in 2 steps with 1 images
