Zickman Co. makes and sells a single product. The current selling price is $45 p

Question

Zickman Co. makes and sells a single product. The current selling price is $45 per unit. Variable costs are $27 per unit, and fixed expenses total $64,000 per month. Sales volume for August totaled 7,200 units. a. Calculate the operating income for August. b. Calculate the break-even point in terms of units sold and total revenues. c. Management is considering the use of robotics in the production process. If this were done, direct labor costs of $12 per unit of product could be saved, but fixed expenses would increase by $70,000 per month. 1. Calculate operating income at a volume of 7,200 units per month with the new cost structure. 2. Calculate the break-even point in units with the new cost structure.

Explanation / Answer

a. 0perating income for August =($45 - $27)*7200 -$64,000 = $65,600.00 b. Breakeven point in units =$64,000/($45 - $27) =3555.555556 Revenue =3555.555556*45 = $160,000.00 c. 1. New operating income =($45 - $27+12)*7200 -$64,000-$70,000 = $82,000.00 2. break-even point in units =($64,000+$70,000)/($45 - $27+12) =4466.67 Revenue =4466.666667*$45= $201,000.00

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