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Riveria Co. makes and sells a single product. The current selling price is $39 per unit. Variable expenses are $20 per unit, and fixed expenses total $35,500 per month. Sales volume for May totaled 4,700 units. Required: a. Calculate operating income for May. b. Calculate the breakeven point in terms of units sold and total revenues. c. Management is considering installing automated equipment to reduce direct labor cost. If this were done, variable expenses would drop to $14 per unit, but fixed expenses would increase to $60,100 per month. 1. Calculate operating income at a volume of 4,700 units per month with the new cost structure. 2. Calculate the breakeven point in units with the new cost structure. 3. Why would you suggest that management seriously consider investing in the automated equipment and accept the new cost structure? 4. Why might management not accept your recommendation but decide instead to maintain the old cost structure?

Riveria Co. makes and sells a single product. The current selling price is $39 per unit. Variable expenses are $20 per unit, and fixed expenses total $35,500 per month. Sales volume for May totaled 4,700 units. Required: a. Calculate operating income for May. b. Calculate the breakeven point in terms of units sold and total revenues. c. Management is considering installing automated equipment to reduce direct labor cost. If this were done, variable expenses would drop to $14 per unit, but fixed expenses would increase to $60,100 per month. 1. Calculate operating income at a volume of 4,700 units per month with the new cost structure. 2. Calculate the breakeven point in units with the new cost structure. 3. Why would you suggest that management seriously consider investing in the automated equipment and accept the new cost structure? 4. Why might management not accept your recommendation but decide instead to maintain the old cost structure?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Riveria Co. makes and sells a single product. The current selling price is $39 per unit. Variable expenses are $20 per unit, and fixed expenses total $35,500 per month. Sales volume for May totaled 4,700 units. Required: a. Calculate operating income for May. b. Calculate the breakeven point in terms of units sold and total revenues. c. Management is considering installing automated equipment to reduce direct labor cost. If this were done, variable expenses would drop to $14 per unit, but fixed expenses would increase to $60,100 per month. 1. Calculate operating income at a volume of 4,700 units per month with the new cost structure. 2. Calculate the breakeven point in units with the new cost structure. 3. Why would you suggest that management seriously consider investing in the automated equipment and accept the new cost structure? 4. Why might management not accept your recommendation but decide instead to maintain the old cost structure? Complete this question by entering your answers in the tabs below. Required A Required B Required C1 Required C2 Required C3 Required C4 Management is considering installing automated equipment to reduce direct labor cost. If this were donė, variable expenses would drop to $14 per unit, but fixed expenses would increase to $60,100 per month. Why would you suggest that management seriously consider investing in the automated equipment and accept the new cost structure? As sales volume moves above the break-even point, contribution margin and operating income will by a relatively greater amount than under the old cost structure.
Transcribed Image Text:Riveria Co. makes and sells a single product. The current selling price is $39 per unit. Variable expenses are $20 per unit, and fixed expenses total $35,500 per month. Sales volume for May totaled 4,700 units. Required: a. Calculate operating income for May. b. Calculate the breakeven point in terms of units sold and total revenues. c. Management is considering installing automated equipment to reduce direct labor cost. If this were done, variable expenses would drop to $14 per unit, but fixed expenses would increase to $60,100 per month. 1. Calculate operating income at a volume of 4,700 units per month with the new cost structure. 2. Calculate the breakeven point in units with the new cost structure. 3. Why would you suggest that management seriously consider investing in the automated equipment and accept the new cost structure? 4. Why might management not accept your recommendation but decide instead to maintain the old cost structure? Complete this question by entering your answers in the tabs below. Required A Required B Required C1 Required C2 Required C3 Required C4 Management is considering installing automated equipment to reduce direct labor cost. If this were donė, variable expenses would drop to $14 per unit, but fixed expenses would increase to $60,100 per month. Why would you suggest that management seriously consider investing in the automated equipment and accept the new cost structure? As sales volume moves above the break-even point, contribution margin and operating income will by a relatively greater amount than under the old cost structure.
Riveria Co. makes and sells a single product. The current selling price is $39 per unit. Variable expenses are $20 per unit, and fixed expenses total $35,500 per month. Sales volume for May totaled 4,700 units. Required: a. Calculate operating income for May. b. Calculate the breakeven point in terms of units sold and total revenues. c. Management is considering installing automated equipment to reduce direct labor cost. If this were done, variable expenses would drop to $14 per unit, but fixed expenses would increase to $60,100 per month. 1. Calculate operating income at a volume of 4,700 units per month with the new cost structure. 2. Calculate the breakeven point in units with the new cost structure. 3. Why would you suggest that management seriously consider investing in the automated equipment and accept the new cost structure? 4. Why might management not accept your tecommendation but decide instead to maintain the old cost structure? Complete this question by entering your answers in the tabs below. Required A Required B Required C1 Required C2 Required C3 RequiredIc4 Management is considering installing automated equipment to reduce direct labor cost. If this were done, variable expenses would drop to $14 per unit, but fixed expenses would increase to $60,100 per month. Why might management not accept your recommendation but decide instead to maintain the old cost structure? The cost structure has much more risk.
Transcribed Image Text:Riveria Co. makes and sells a single product. The current selling price is $39 per unit. Variable expenses are $20 per unit, and fixed expenses total $35,500 per month. Sales volume for May totaled 4,700 units. Required: a. Calculate operating income for May. b. Calculate the breakeven point in terms of units sold and total revenues. c. Management is considering installing automated equipment to reduce direct labor cost. If this were done, variable expenses would drop to $14 per unit, but fixed expenses would increase to $60,100 per month. 1. Calculate operating income at a volume of 4,700 units per month with the new cost structure. 2. Calculate the breakeven point in units with the new cost structure. 3. Why would you suggest that management seriously consider investing in the automated equipment and accept the new cost structure? 4. Why might management not accept your tecommendation but decide instead to maintain the old cost structure? Complete this question by entering your answers in the tabs below. Required A Required B Required C1 Required C2 Required C3 RequiredIc4 Management is considering installing automated equipment to reduce direct labor cost. If this were done, variable expenses would drop to $14 per unit, but fixed expenses would increase to $60,100 per month. Why might management not accept your recommendation but decide instead to maintain the old cost structure? The cost structure has much more risk.
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