Free

60.1K

Verified Solution

Link Copied!

Corrigan Enterprises is studying the acquisition of two electricalcomponent insertion systems for producing its sole product, theuniversal gismo. Data relevant to the systems follow.

Model no. 6754:
	Variable costs, $16.00 per unit
	Annual fixed costs, $986,300

Model no. 4399:
	Variable costs, $10.80 per unit
	Annual fixed costs, $1,114,400

Corrigan’s selling price is $64 per unit for the universal gismo,which is subject to a 5 percent sales commission. (In the followingrequirements, ignore income taxes.)

1. How many units must the company sell tobreak even if Model 6754 is selected? (Do not roundintermediate calculations and round your final answer up to nearestwhole number.)

2-a. Calculate the net income of the twosystems if sales and production are expected to average 41,000units per year.


2-b. Which of the two systems would be moreprofitable?

multiple choice

• Model No. 6754

• Model No. 4399

3. Assume Model 4399 requires the purchase ofadditional equipment that is not reflected in the precedingfigures. The equipment will cost $450,000 and will be depreciatedover a five-year life by the straight-line method. How many unitsmust Corrigan sell to earn $974,000 of income if Model 4399 isselected? As in requirement 2, sales and production are expected toaverage 41,000 units per year. (Do not round intermediatecalculations and round your final answer up to nearest wholenumber.)

4. Ignoring the information presented in part3, at what volume level will the annual total cost of each systembe equal? (Do not round intermediate calculations and roundyour final answer up to nearest whole number.)