Houston-based Advanced Electronics manufactures audio speakers for desktop computers. The following data relate to the period just ended when the company produced and sold 42,000 speaker sets: Sales Variable costs Fixed costs $3,444,000 861,000 2,310,000 Management is considering relocating its manufacturing facilities to northern Mexico to reduce costs. Variable costs are expected to average $18.00 per set; annual fixed costs are anticipated to be $1,988,000 (In the following requirements, ignore Income taxes.) Required: 1. Calculate the company's current income and determine the level of dollar sales needed to double that figure, assuming that manufacturing operations remain in the United States. 2. Determine the break-even point in speaker sets if operations are shifted to Mexico. 3. Assume that management desires to achieve the Mexican break-even point; however, operations will remain in the United States. a. If variable costs remain constant, by how much must fixed costs change? b. If fixed costs remain constant, by how much must unit variable cost change? 4. Determine the impact (increase, decrease, or no effect) of the following operating changes.
Houston-based Advanced Electronics manufactures audio speakers for desktop computers. The following data relate to the period just ended when the company produced and sold 42,000 speaker sets: Sales Variable costs Fixed costs $3,444,000 861,000 2,310,000 Management is considering relocating its manufacturing facilities to northern Mexico to reduce costs. Variable costs are expected to average $18.00 per set; annual fixed costs are anticipated to be $1,988,000 (In the following requirements, ignore Income taxes.) Required: 1. Calculate the company's current income and determine the level of dollar sales needed to double that figure, assuming that manufacturing operations remain in the United States. 2. Determine the break-even point in speaker sets if operations are shifted to Mexico. 3. Assume that management desires to achieve the Mexican break-even point; however, operations will remain in the United States. a. If variable costs remain constant, by how much must fixed costs change? b. If fixed costs remain constant, by how much must unit variable cost change? 4. Determine the impact (increase, decrease, or no effect) of the following operating changes.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Houston-based Advanced Electronics manufactures audio speakers for desktop computers. The following data relate to the period just
ended when the company produced and sold 42,000 speaker sets:
Sales
Variable costs
Fixed costs
$3,444,000
861,000
2,310,000
Management is considering relocating its manufacturing facilities to northern Mexico to reduce costs. Variable costs are expected to
average $18.00 per set; annual fixed costs are anticipated to be $1,988,000. (In the following requirements, ignore income taxes.)
Required:
1. Calculate the company's current income and determine the level of dollar sales needed to double that figure, assuming that
manufacturing operations remain in the United States.
2. Determine the break-even point in speaker sets if operations are shifted to Mexico.
3. Assume that management desires to achieve the Mexican break-even point; however, operations will remain in the United States.
a. If variable costs remain constant, by how much must fixed costs change?
b. If fixed costs remain constant, by how much must unit variable cost change?
4. Determine the impact (increase, decrease, or no effect) of the following operating changes.
Complete this question by entering your answers in the tabs below.
Required 1
Required 2 Required 3
Required 4
Calculate the company's current income and determine the level of dollar sales needed to double that figure, assuming that
manufacturing operations remain in the United States. (Do not round intermediate calculations and round your final answers
to nearest whole dollar.)
Current income
$
273,000
Required dollar sales
$ 3,717,000
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Step 1: Introduction of the concept of Contribution Margin Approach :
VIEWStep 2: Determination of current income & level of sales needed to be double that figure
VIEWStep 3: Determination of Break-even point in speaker sets if operations are shifted to Mexico
VIEWStep 4: Determination of change in fixed costs & change in per unit variable costs
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