Corrigan Enterprises is studying the acquisition of twoelectrical component insertion systems for producing its soleproduct, the universal gismo. Data relevant to the systemsfollow.
| Model no. 6754: |
| |
| Variable costs, $18.00 per unit |
| Annual fixed costs, $986,400 |
| Model no. 4399: |
| |
| Variable costs, $11.80 per unit |
| Annual fixed costs, $1,114,000 |
Corrigan’s selling price is $65 per unit for the universalgismo, which is subject to a 15 percent sales commission. (In thefollowing requirements, ignore income taxes.)
Required:
How many units must the company sell to break even if Model 6754is selected? (Do not round intermediate calculations andround your final answer up to nearest whole number.)
Calculate the net income of the two systems if sales andproduction are expected to average 49,000 units per year.
Which of the two systems would be more profitable? Model No. 675or Model No. 4399
Assume Model 4399 requires the purchase of additional equipmentthat is not reflected in the preceding figures. The equipment willcost $410,000 and will be depreciated over a five-year life by thestraight-line method. How many units must Corrigan sell to earn$959,000 of income if Model 4399 is selected? As in requirement(2), sales and production are expected to average 49,000 units peryear. (Do not round intermediate calculations and roundyour final answer up to nearest whole number.)
Ignoring the information presented in part (4), at what volumelevel will the annual total cost of each system be equal?(Do not round intermediate calculations and round yourfinal answer up to nearest whole number.)
