Please show all work. Thank you. Payne Co. sells shoes which are made in the USA
ID: 2506108 • Letter: P
Question
Please show all work. Thank you.
Payne Co. sells shoes which are made in the USA. Current data for the last month was as follows:
Average Selling Price $65
Variable Cost Per Unit $35
Monthly Fixed Costs $75,000
Units Sold 5,000
Payne has an opportunity to shift production overseas. The overseas manufacturer would charge a monthly charge of $50,000 to make all of the shoes thus lowering the variable costs to the commissions of 10% of sales. Payne would still have the fixed costs listed above as well as the new manufacturing fixed costs.
Required
Complete the chart below with the original data as well as if the changes are made.
Current Situation
With Changes
Cost Per Unit
Net Income
Break-Even in Units
Units for Net Income of $50,000
What should Payne do? Consider non-financial aspects as well as the changes in accounting data.
Current Situation
With Changes
Cost Per Unit
Net Income
Break-Even in Units
Units for Net Income of $50,000
Explanation / Answer
Original (Current situation )
Cost per unit = 35 + 75000/5000 = $ 50
Net Income = 65*5000 - 35*5000 - 75000 = $ 75000
Break Even units (x)
65*x - 35*x - 75000 =0
x = 75000/30 = 2500
Units for net income of 50,000 :
50,000 = 65*x - 35*x - 75000
x = 4166.67 i.e. 4167 units
Now with changes :
Fixed Costs = $50,000 + $75,000 = $125,000
Variable cost per unit = 0.1*65 = $6.5
Cost per unit = 6.5 + 125000/5000 = $ 31.5
Net Income = 65*5000 - 6.5*5000 - 125000 = $ 1675000
Break Even units (x)
65*x - 6.5*x - 125000 =0
x = 125000/58.5 = 2136.75 i.e. 2137
Units for net income of 50,000 :
50,000 = 65*x - 6.5*x - 125000
x = 2991.45 i.e. 2992 units
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.