Data concerning Sumter Corporation\'s single product appear below: Per Unit Perc
ID: 2527020 • Letter: D
Question
Data concerning Sumter Corporation's single product appear below:
Per Unit
Percent of Sales
Selling price
$220
100%
Variable expenses
66
30%
Contribution margin
$154
70%
Fixed expenses are $1,024,000 per month. The company is currently selling 8,000 units per month.
Required:
a. Compute the break even amount in units.
b. Management is considering using a new component that would increase the unit variable cost by $6. Since the new component would improve the company's product, the marketing manager predicts that monthly sales would increase by 300 units. What should be the overall effect on the company's monthly net operating income of this change if fixed expenses are unaffected?
Per Unit
Percent of Sales
Selling price
$220
100%
Variable expenses
66
30%
Contribution margin
$154
70%
Explanation / Answer
a) Break even point = 1024000/154 = 6649 unit
b) Effect on net income :
Net operating income decrease by (208000-204400) = -3600
Present Proposed Sales 1760000 8300*220 = 1826000 Variable cost -528000 8300*72 = -597600 Contribution margin 1232000 1228400 FIxed cost -1024000 -1024000 Net operating income 208000 204400Related Questions
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