Vardy Virtual Viewing Ltd are considering changing one of their main production processes. If the process at one of their touch screen production plants is implemented, it will have a significant impact on the cost structure of one of their most popular lines of virtual reality headsets. Information relevant to this decision is given in the following table: Current process New process Sales price (per headset) £450.00 £450.00 Direct materials cost (per headset) £225.00 £225.00 Direct labour cost (per headset) £90.00 £60.00 Fixed manufacturing overheads £120,000 £240,000 Fixed administrative overheads £100,000 £80,000 Fixed selling and distribution overheads £155,000 £155,000 Break-even point (headsets) 2,778 2,879 Margin of safety at budgeted profit level 62% 56% Unit sales required to achieve budgeted profit of £600,000 (headsets) 7,223 6,516 In addition the following profit-volume chart has been produced: Profit volume chart £1,000,000 Current process profit/ (loss) New process profit/ (loss) £800,000 £600,000 £400,000 £200,000 £0 1,000 3,000 4,000 5,000 6,000 7,000 8,000 -£200,000 -£400,000 -£600,000 Output and sales (units) Profit/(loss)
Vardy Virtual Viewing Ltd are considering changing one of their main production processes. If the process at one of their touch screen production plants is implemented, it will have a significant impact on the cost structure of one of their most popular lines of virtual reality headsets. Information relevant to this decision is given in the following table: Current process New process Sales price (per headset) £450.00 £450.00 Direct materials cost (per headset) £225.00 £225.00 Direct labour cost (per headset) £90.00 £60.00 Fixed manufacturing overheads £120,000 £240,000 Fixed administrative overheads £100,000 £80,000 Fixed selling and distribution overheads £155,000 £155,000 Break-even point (headsets) 2,778 2,879 Margin of safety at budgeted profit level 62% 56% Unit sales required to achieve budgeted profit of £600,000 (headsets) 7,223 6,516 In addition the following profit-volume chart has been produced: Profit volume chart £1,000,000 Current process profit/ (loss) New process profit/ (loss) £800,000 £600,000 £400,000 £200,000 £0 1,000 3,000 4,000 5,000 6,000 7,000 8,000 -£200,000 -£400,000 -£600,000 Output and sales (units) Profit/(loss)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
should the company shift to the new process.. Give reasons
Transcribed Image Text:Vardy Virtual Viewing Ltd are considering changing one of their main production processes. If the process at one
of their touch screen production plants is implemented, it will have a significant impact on the cost structure of
one of their most popular lines of virtual reality headsets.
Information relevant to this decision is given in the following table:
Current process
New process
Sales price (per headset)
£450.00
£450.00
Direct materials cost (per headset)
£225.00
£225.00
Direct labour cost (per headset)
£90.00
£60.00
Fixed manufacturing overheads
£120,000
£240,000
Fixed administrative overheads
£100,000
£80,000
Fixed selling and distribution overheads
£155,000
£155,000
Break-even point (headsets)
2,778
2,879
Margin of safety at budgeted profit level
62%
56%
Unit sales required to achieve budgeted profit of £600,000 (headsets)
7,223
6,516
In addition the following profit-volume chart has been produced:
Profit volume chart
£1,000,000
current process profit/ (loss)
£800,000
New process profit/ (loss)
£600,000
£400,000
£200,000
£0
1,000
3,000
4,000
5,000
6,000
7,000
8,000
-£200,000
-£400,000
-£600,000
Output and sales (units)
Profit/(loss)
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education