Rosario Company, which is located in Buenos Aires, Argentina, manufactures a com
ID: 2538683 • Letter: R
Question
Rosario Company, which is located in Buenos Aires, Argentina, manufactures a component used in farm machinery. The firm's fixed costs are 3,700,000 p per year. The variable cost of each component is 1100 p, and the components are sold for 3,500 p each. The company sold 5,300 components during the prior year. (p denotes the peso, Argentina's national currency. Several countries use the peso as their monetary unit. On the day this exercise was written. Argentina's peso was worth 0.104 U.S. dollar. In the following requirements, ignore income taxes.) Required: 1. Compute the break-even point in units 2. What will the new break-even point be if fixed costs increase by 10 percent? 3. What was the company's net income for the prior year? 4. The sales manager believes that a reduction in the sales price to 3,000 p will result in orders for 900 more components each year. What will the break-even point be if the price is changed? (Round your answer to the nearest whole number.) 5. Should the price change discussed in requirement (4) be made? 1. Break-even point 2. New break-even point 3. Net income 4. New break-even point 5. Should the price change discussed in requirement (4) be made? components components componentsExplanation / Answer
1. Break even point = Fixed Cost / Contribution per unit
= 3700000 / 2400 = 1542 units
2. New break even = 3700000 + 370000 / 2400 = 1696 units
3. Net income = Sales - Variable cost - Fixed Cost = ( 3500 - 1100 ) *5300 - 3700000 = 9020000
4. New break even reducing sale price to 3000 , new cont. per unit = 1900
Break even = 3700000 / 1900 = 1947 units
5. Net income after reducing sale price = 1900 * 6200 - 3700000 = 8080000
Since net income has been reduced , therefore it is not adviced to reduce selling price to 3000 .
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