Parkins Company produces and sells a single product. The company”s income statement for the most recent month is given below:
|
Sales (6,000 units at $40 per unit) |
|
$240,000
|
|
Less manufacturing costs: |
|
|
|
Direct materials |
$48,000 |
|
|
Direct labor (variable) |
60,000 |
|
|
Variable factory overhead |
12,000 |
|
|
Fixed factory overhead |
30,000 |
150,000 |
|
Gross margin |
|
90,000 |
|
Less selling and other expenses: |
|
|
|
Variable selling and other expenses |
24,000 |
|
|
Fixed selling and other expenses |
42,000 |
66,000 |
|
Net operating income |
|
$ 24,000 |
There are no beginning or ending inventories.
Required:
a. Compute the company”s monthly break even point in units of product.
b. What would the company”s monthly net operating income be if sales increased by 25% and there is no change in total fixed expenses?
c. What dollar sales must the company achieve in order to earn a net operating income of $50,000 per month?
d. The company has decided to automate a portion of its operations. The change will reduce direct labor costs per unit by 40 percent, but it will double the costs for fixed factory overhead. Compute the new break even point in units.