Chapter IE, Problem 2IE

Absorption Costing, Variable Costing, Cost, Volume,Profit, Relationships

Newton Company manufactures and sells one product. The company assembled the following projections for its first year of operations:

During its first year of operations, Newton expects to produce 25,000 units and sell 20,000 units. The budgeted selling price of the company’s only product is S66 per unit.

Required (answer each question independently by referring to the original data):

1. Assuming that Newton’s projections arc accurate,what will be its absorption costing net operating income in its first year of operations?

Newton is considering investing in a higher quality raw material that will increase its direct materials cost by SI per unit. It estimates that the higher quality raw material will increase sales by 1,000 units. What will be the company’s revised absorption costing net operating income if it invests in the higher quality raw material and continues to produce 25,000 units?

Newton is considering raising its selling price by $1.00 per unit with an expectation that it will lower unit sales by 1,500 units. What will be the company’s revised absorption costing net operating income if it raises its price by $ 1.00 and continues to produce 251000 units?

Assuming that Newton’s projections are accurate, what will be its variable costing net operating income in its first year of operations?

Newton is considering investing in a higher quality raw material that will increase its direct materials cost by $1 per unit. It estimates that the higher quality raw material will increase sales by 1,000 units. What will be the company’s revised variable costing net operating income if it invests in the higher quality raw material and continues to produce 25,000 units?

Newton is considering raising its selling price by $1.00 per unit with an expectation that it will lower unit sales by 1,500 units. What will be the company’s revised variable costing net operating income if it raises its price by $1.00 and continues to produce 25,000 units?

What is Newton’s Break-Even point in unit sales? What is its Break-Even point in dollar sales?

What is the company’s projected margin of safety in its first year of operations?