Littlefield Partners produce a part sold to agricultural equipment suppliers. For the last year (Year 1), the price, costs, and volume of the part were as follows: Unit price Unit variable cost Annual fixed cost Sales volume $ 60 $ 40 $ 3,320,000 239,200 units Managers at Littlefield believe that next year (Year 2), conditions in the industry will result in lower prices, both for the part they sell and the materials they purchase. Their best estimates at this time are that the selling price will decline by 10 percent while the unit variable cost will decline by 5 percent, taking into account the changes in both materials and labor. They believe that fixed costs will remain the same. Required: a. What was the break-even volume in number of units last year (Year 1)? b. Assume that the managers estimates are correct for Year 2. How many units would have to be sold in Year 2 to earn the same operating profits as earned in Year 1? c. Assume that the managers' estimates on price and unit variable costs are correct for Year 2, but they are uncertain about fixed costs. By how much would fixed costs have to change (in amount and as a percentage of current fixed costs) if the break-even level was to remain the same in Year 2 as in Year 1?
Littlefield Partners produce a part sold to agricultural equipment suppliers. For the last year (Year 1), the price, costs, and volume of the part were as follows: Unit price Unit variable cost Annual fixed cost Sales volume $ 60 $ 40 $ 3,320,000 239,200 units Managers at Littlefield believe that next year (Year 2), conditions in the industry will result in lower prices, both for the part they sell and the materials they purchase. Their best estimates at this time are that the selling price will decline by 10 percent while the unit variable cost will decline by 5 percent, taking into account the changes in both materials and labor. They believe that fixed costs will remain the same. Required: a. What was the break-even volume in number of units last year (Year 1)? b. Assume that the managers estimates are correct for Year 2. How many units would have to be sold in Year 2 to earn the same operating profits as earned in Year 1? c. Assume that the managers' estimates on price and unit variable costs are correct for Year 2, but they are uncertain about fixed costs. By how much would fixed costs have to change (in amount and as a percentage of current fixed costs) if the break-even level was to remain the same in Year 2 as in Year 1?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Littlefield Partners produce a part sold to agricultural equipment suppliers. For the last year (Year 1), the price, costs, and volume of the
part were as follows:
Unit price
Unit variable cost
Annual fixed cost
Sales volume
Managers at Littlefield believe that next year (Year 2), conditions in the industry will result in lower prices, both for the part they sell and
the materials they purchase. Their best estimates at this time are that the selling price will decline by 10 percent while the unit variable
cost will decline by 5 percent, taking into account the changes in both materials and labor. They believe that fixed costs will remain the
same.
$ 60
$ 40
Required:
a. What was the break-even volume in number of units last year (Year 1)?
b. Assume that the managers estimates are correct for Year 2. How many units would have to be sold in Year 2 to earn the same
operating profits as earned in Year 1?
Required A Required B
$ 3,320,000
c. Assume that the managers' estimates on price and unit variable costs are correct for Year 2, but they are uncertain about fixed
costs. By how much would fixed costs have to change (in amount and as a percentage of current fixed costs) if the break-even level
was to remain the same in Year 2 as in Year 1?
239,200 units
Required A Required B
Complete this question by entering your answers in the tabs below.
Required A Required B
What was the break-even volume in number of units last year (Year 1)?
Break-even volume
Change in fixed costs (in amount)
Change in fixed costs (in percent)
Required C
Answer is complete but not entirely correct.
160,000 units
Required C
Assume that the managers estimates are correct for Year 2. How many units would have to be sold in Year 2 to earn the same
operating profits as earned in Year 1?
Units to be sold in Year 2
287,500 units
Required C
Assume that the managers' estimates on price and unit variable costs are correct for Year 2, but they are uncertain about
fixed costs. By how much would fixed costs have to change (in amount and as a percentage of current fixed costs) if the
break-even level was to remain the same in Year 2 as in Year 1?
$
640,000
20
%
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