Pharoah Company produces a single product. It sold 67,500 units last year with the following results: Sales $1,687,500 Variable costs $675,000 Fixed costs 270,000 945,000 Operating income before taxes 742,500 Income taxes (45%) 334,125 Operating income $408,375 In an attempt to improve its product, Pharoah is considering replacing a component part in its product that has a cost of $5 per unit with a new and better part costing $10 per unit during the coming year. A new machine would also be needed to increase plant capacity. The machine would cost $81,000, with a useful life of six years and no salvage value. The company uses straight-line depreciation on all plant assets. What was Pharoah’s break-even point in units last year? Break-even point enter the break-even point in units units How many units of product would Pharoah have had to sell in the past year to earn $222,750 in operating income after taxes? Sales to be made enter a number of units units If it holds the sales price constant and makes the suggested changes, how many units of product must the company sell in the coming year to break even? Break-even enter the break-even point in units units If it holds the sales price constant and makes the suggested changes, how many units of product will Pharoah have to sell to make the same operating income before taxes as last year? Required sales enter the required sales in units units If Pharoah wishes to maintain the same contribution margin ratio, what selling price per unit of product must it charge next year to cover the increased materials costs? (Round answer to 2 decimal places, e.g. 15.25.) Selling price per unit $enter the selling price per unit in dollars rounded to 2 decimal places

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter12: Activity-based Management

Section: Chapter Questions

Problem 28P: Bienestar, Inc., has two plants that manufacture a line of wheelchairs. One is located in Kansas...

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Pharoah Company produces a single product. It sold 67,500 units last year with the following results:

Sales		$1,687,500
Variable costs	$675,000
Fixed costs	270,000	945,000
Operating income before taxes		742,500
Income taxes (45%)		334,125
Operating income		$408,375

In an attempt to improve its product, Pharoah is considering replacing a component part in its product that has a cost of $5 per unit with a new and better part costing $10 per unit during the coming year. A new machine would also be needed to increase plant capacity. The machine would cost $81,000, with a useful life of six years and no salvage value. The company uses straight-line depreciation on all plant assets.

What was Pharoah’s break-even point in units last year?

Break-even point

enter the break-even point in units

units

How many units of product would Pharoah have had to sell in the past year to earn $222,750 in operating income after taxes?

Sales to be made

enter a number of units

units

If it holds the sales price constant and makes the suggested changes, how many units of product must the company sell in the coming year to break even?

Break-even

enter the break-even point in units

units

If it holds the sales price constant and makes the suggested changes, how many units of product will Pharoah have to sell to make the same operating income before taxes as last year?

Required sales

enter the required sales in units

units

If Pharoah wishes to maintain the same contribution margin ratio, what selling price per unit of product must it charge next year to cover the increased materials costs? (Round answer to 2 decimal places, e.g. 15.25.)

Selling price per unit

$enter the selling price per unit in dollars rounded to 2 decimal places

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