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Houston-based Advanced Electronics manufactures audio speakers for desktop computers. The following data relate to the period...

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Accounting

Houston-based Advanced Electronics manufactures audio speakersfor desktop computers. The following data relate to the period justended when the company produced and sold 43,000 speaker sets:

Sales$3,526,000
Variable costs881,500
Fixed costs2,310,000

Management is considering relocating its manufacturingfacilities to northern Mexico to reduce costs. Variable costs areexpected to average $18.00 per set; annual fixed costs areanticipated to be $1,988,000. (In the following requirements,ignore income taxes.)


Required:

  1. Calculate the company’s current income and determine the levelof dollar sales needed to double that figure, assuming thatmanufacturing operations remain in the United States.
  2. Determine the break-even point in speaker sets if operationsare shifted to Mexico.
  3. Assume that management desires to achieve the Mexicanbreak-even point; however, operations will remain in the UnitedStates.
    1. If variable costs remain constant, by how much must fixed costschange?
    2. If fixed costs remain constant, by how much must unit variablecost change?
  4. Determine the impact (increase, decrease, or no effect) of thefollowing operating changes.

Answer & Explanation Solved by verified expert
3.7 Ratings (345 Votes)
Solution 1 Current income of the company Sales revenue Variable cost fixed cost 3526000 881500 2310000 334500 Contribution margin ratio 3526000 881500 3526000 75 Target income 3345002 669000 Dollar sale needed to earn target income Fixed    See Answer
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