Jumbo Co. sells a special toy product in Hong Kong. The cost information for the current year is as follows: Direct materials at $12 per pound Direct labour at $10 per hour Variable manufacturing overheads Variable selling and administrative overheads Fixed manufacturing overheads Fixed selling and administrative overheads 2 pounds per unit 4 hours per unit $5 per direct labour hour $18 per unit $2,000,000 per year $1,000,000 per year A supplier selling production machines has offered Jumbo Co. a new model of the machine which can improve productivity by reducing one hour of labour time per unit. The renting cost of this new machine will incur an extra cost of $45,000 per month. Currently the annual sales quantity is 60,000 units and the selling price is $300 each. Your manager is seeking your advice for the replacement of the machine. Required: (a) Calculate the change in Net Profit resulting from the replacement of the machine. Indicate whether it is an Increase or a Decrease in the Net Profit from the change. (b) Calculate the number of sales units that would give the same amount of net profit before and after the replacement of the existing machine.
Jumbo Co. sells a special toy product in Hong Kong. The cost information for the current year is as follows:
Direct materials at $12 per pound
Direct labour at $10 per hour
Variable manufacturing
Variable selling and administrative overheads Fixed manufacturing overheads
Fixed selling and administrative overheads
2 pounds per unit
4 hours per unit
$5 per direct labour hour
$18 per unit $2,000,000 per year $1,000,000 per year
A supplier selling production machines has offered Jumbo Co. a new model of the machine which can improve productivity by reducing one hour of labour time per unit.
The renting cost of this new machine will incur an extra cost of $45,000 per month. Currently the annual sales quantity is 60,000 units and the selling price is $300 each. Your manager is seeking your advice for the replacement of the machine.
Required:
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(a) Calculate the change in Net Profit resulting from the replacement of the machine. Indicate whether it is an Increase or a Decrease in the Net Profit from the change.
-
(b) Calculate the number of sales units that would give the same amount of net profit before and after the replacement of the existing machine.
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