Asked by Nitin Channa on Jul 14, 2024
Verified
A manufacturing company is studying the feasibility of producing a new product. The selling price is expected to be $105. The new production line would manufacture up to 825,000 units at a variable cost of $64 per unit. Fixed costs would be $1,515,000. Variable selling and administration expenses would amount to $18. Determine the units needed to earn operating income of $4,000,000.
A) 241,571
B) 166,276
C) 527,685
D) 239,783
E) 313,913
Operating Income
Operating income is the profit realized from a business's core operations, excluding deductions of interest and taxes.
Variable Cost
Costs that change in proportion with the level of output or production activity.
Fixed Costs
Overheads such as rent, salaries, and insurance that do not fluctuate with the level of goods produced or sold.
- Establish the amount of sales needed to accomplish a desired operating income or profit goal.
- Implement Cost-Volume-Profit analysis within a manufacturing setting to assess the viability of introducing a new product.
Verified Answer
CA
Corwyn AsburyJul 18, 2024
Final Answer :
D
Explanation :
To find the units needed to earn an operating income of $4,000,000, we use the formula for calculating the break-even point in units, but adjust it to include the desired profit: Units=Fixed Costs+Desired ProfitSelling Price per Unit−Variable Cost per Unit−Variable Selling and Admin Expenses per Unit \text{Units} = \frac{\text{Fixed Costs} + \text{Desired Profit}}{\text{Selling Price per Unit} - \text{Variable Cost per Unit} - \text{Variable Selling and Admin Expenses per Unit}} Units=Selling Price per Unit−Variable Cost per Unit−Variable Selling and Admin Expenses per UnitFixed Costs+Desired Profit Given:- Fixed Costs = $1,515,000- Desired Profit = $4,000,000- Selling Price per Unit = $105- Variable Cost per Unit = $64- Variable Selling and Admin Expenses per Unit = $18 Units=1,515,000+4,000,000105−64−18 \text{Units} = \frac{1,515,000 + 4,000,000}{105 - 64 - 18} Units=105−64−181,515,000+4,000,000Units=5,515,00023 \text{Units} = \frac{5,515,000}{23} Units=235,515,000Units=239,782.61 \text{Units} = 239,782.61 Units=239,782.61 Rounding to the nearest whole number, we get 239,783 units.
Learning Objectives
- Establish the amount of sales needed to accomplish a desired operating income or profit goal.
- Implement Cost-Volume-Profit analysis within a manufacturing setting to assess the viability of introducing a new product.
Related questions
Use the Texas Instruments BAII Plus Break-Even Worksheet to Solve ...
A Manufacturing Company Is Studying the Feasibility of Producing a ...
A Manufacturing Company Is Studying the Feasibility of Producing a ...
Sam Manufactures a Product That Is Selling So Well, He ...
Enrique Is Studying the Feasibility of Producing a New Product ...