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Digby has a new design for their product Dixie next round that can reduce their material cost of producing units from $8.14 to $7.32. Digby passes on half of all cost savings by cutting the current price to customers. For simplicity: - Use current labor costs of $4.28 - Assume all period costs as reported on Digby's Income Statement (Annual Rpt Pg 2) will remain the same. Determine how many units (000) of product Dixie would need to be sold next round to break even on the product.

Select: 1Save Answer 1,119 units. 1,455 units. 861 units. 1,189 units. 1,057 units. 895 units.

Annual Report Digby C59559 Round: 3 Dec. 31, 2018

2018 Income Statement (Product Name:) Dell Dixie Dot Dune Dart Deft Na Na 2018 Total Common Size Sales $19,723 $41,001 $43,748 $33,791 $38,070 $22,936 $0 $0 $199,269 100.0% Variable Costs: Direct Labor $2,404 $9,225 $10,389 $6,091 $10,736 $4,711 $0 $0 $43,556 21.9% Direct Material $6,874 $18,135 $18,099 $12,478 $16,241 $9,684 $0 $0 $81,512 40.9% Inventory Carry $550 $483 $539 $513 $122 $0 $0 $0 $2,207 1.1% Total Variable $9,828 $27,843 $29,027 $19,082 $27,099 $14,395 $0 $0 $127,274 63.9% Contribution Margin $9,895 $13,158 $14,721 $14,709 $10,972 $8,541 $0 $0 $71,995 36.1% Period Costs: Depreciation $3,833 $5,156 $2,591 $2,366 $2,781 $2,423 $0 $0 $19,150 9.6% SG&A: R&D $983 $0 $973 $973 $995 $114 $0 $0 $4,039 2.0% Promotions $1,140 $1,140 $1,140 $1,140 $1,140 $1,140 $0 $0 $6,840 3.4% Sales $1,000 $1,000 $1,900 $2,200 $900 $900 $0 $0 $7,900 4.0% Admin $255 $529 $565 $436 $491 $296 $0 $0 $2,572 1.3% Total Period $7,211 $7,825 $7,169 $7,116 $6,308 $4,873 $0 $0 $40,500 20.3% Net Margin $2,684 $5,333 $7,552 $7,593 $4,664 $3,668 $0 $0 $31,495 15.8% Definitions: Sales: Unit sales times list price. Direct Labor: Labor costs incurred to produce the product that was sold. Inventory Carry Cost: the cost to carry unsold goods in inventory.Depreciation: Calculated on straight-line 15-year depreciation of plant value. R&D Costs: R&D department expenditures for each product. Admin: Administration overhead is estimated at 1.5% of sales. Promotions: The promotion budget for each product. Sales: The sales force budget for each product.Other: Charges not included in other categories such as Fees, Write Offs, and TQM. The fees include money paid to investment bankers and brokerage firms to issue new stocks or bonds plus consulting fees your instructor might assess. Write-offs include the loss you might experience when you sell capacity or liquidate inventory as the result of eliminating a production line. If the amount appears as a negative amount, then you actually made money on the liquidation of capacity or inventory. EBIT: Earnings Before Interest and Taxes. Short Term Interest: Interest expense based on last year's current debt, including short term debt, long term notes that have become due, and emergency loans. Long Term Interest: Interest paid on outstanding bonds. Taxes: Income tax based upon a 35% tax rate. Profit Sharing: Profits shared with employees under the labor contract. Net Profit: EBIT minus interest, taxes, and profit sharing. Other $8,412 4.2% EBIT $23,083 11.6% Short Term Interest $3,888 2.0% LongTerm Interest $14,323 7.2% Taxes $1,705 0.9% Profit Sharing $63 0.0% Net Profit $3,103 1.6%

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To calculate the Break-even point of Dixie we need to first calculate the selling price of Dixie.

To find out the selling price of Dixie, we first need to find out the quantity sold of Dixie in the 3^rd round.

We can calculate the same by dividing total Labor cost by Labor cost per unit:

Sales Quantity = Total Labor Cost/ Labor Cost per Unit = $9,225/$4.28 = 2156.

Now to calculate the current selling price of Dixie:

Current Selling price = Total Sales/ No. of units sold = $41,001/2156 = $19.02.

Now calculate the proposed selling price as follows:

Proposed selling price = $19.02 (8.14-7.32)/2 = $18.61

Now find out the proposed variable cost per unit of Dixie.

Now calculate the inventory carrying cost as follows:

Inventory carrying cost per unit = 483/2156 = $0.22

To do so just add direct material cost direct labor and Inventory Carrying costs to get Proposed variable cost per unit.

Therefore, Total variable cost per unit = $4.28+7.32+0.22= $11.82

Now let us find out the break-even point of Dixie by using CVP equation as follows:

(S-V)*X= F

(18.61-11.82)*X = $7,825

Therefore X = $7,825/$6.79 = 1153 units

Comment

Answer is not 1153 units which way given already.

50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Variable Margins 2008 Digby Z Z