. Hamsung , Inc., a manufacturer of electronic appliances, estimated the unit co
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Question
. Hamsung , Inc., a manufacturer of electronic appliances, estimated the unit cost of one of its products as follows: Material costs $ 63 Labor costs $ 24 Overhead $110 $197 The overhead cost is made up of $50 per unit variable costs and $60 per unit fixed costs. Hamsung determined the unit fixed cost by dividing its total annual fixed costs by the 10,000 units it expected to produce during the year. The product normally sells for $257 per unit, and the company’s income is subject to a 30% income tax rate.
a. What is the break-even unit volume for this product line?
b. What would Hamsung’s net income be it sold 8,500 units during the year?
Explanation / Answer
a.
Break-even unit: This is the number of units produced by the company at which it earns neither profit nor loss.
Break-even units = Total fixed cost / Contribution per unit
= (10,000 units×$60)/{Sales – (Material + Labor + Variable overhead)}
= $600,000 / {$257 – ($63 + $24 + $50)}
= $600,000 / $120
= 5,000 units (Answer)
b.
Net income = (Total contribution – Fixed cost) × (1 – tax rate)
= ($120 × 8,500 units - $600,000) × (1 – 0.30)
= $420,000 × 0.70
= $294,000 (Answer)
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