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klemol [59]
3 years ago
7

Martha Manufacturing produces a single product that sells for $80. Variable costs per unit equal $32. The company expects total

fixed costs to be $72,000 for the next month at the projected sales level of 2,000 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately.
1) What is the current breakeven point in terms of number of units?
2) Suppose management believes that a $16,000 increase in monthly advertising expense will result in a considerable increase in sale. Sale must increase by how much to justify this additional expenditure?
3) Suppose that management believes that a 10% reduction in the selling price will result in a 10% increase in sales. If this proposed reduction in selling price is implemented,
a) Operating income will decrease by $8,ooo
b) Operating income will increase by $8,000
c) Operating income will decrease by $16,000
d) Operating income will increase by $16,000.
Business
1 answer:
garri49 [273]3 years ago
7 0
Each unit sells: $80
Each unit costs to make: $32
Fixed costs: 72,000
Goal: 2,000 units sold

If they meet their goal, let's see how that would go:

(2,000 * 80) - (2,000 * 32) - 72,000 = ?
160,000 - 64,000 - 72,000 = 24,000

24,000 is the profit they would make for hitting their goal.

Question 1:
What is the break-even point? The break-even means they make no money, but they also lose no money. So that final number (24,000) would be 0 instead. How many units would they have to make to hit zero?
(x * 80) - (x * 32) - 72,000 = 0.
80x - 32x = 72,000
48x = 72,000
x = 1500 units

We can verify by using our first formula we've already determined, using this new value for units.
(1,500* 80) - (1,500 * 32) - 72,000 = ?
120,000 - 48,000 - 72,000 = 0? True!

Question 2: If they increase their expenses by 16,000, what is their new break even point?

(x * 80) - (x * 32) - 72,000 - 16000 = 0.
80x - 32x - 88000 = 0
48x = 88000
x = 1833

Question 3: 10% reduction in selling price and 10% increase in sales. (Assuming based off the original formula the problem provided.)

Original: (2,000 * 80) - (2,000 * 32) - 72,000 = ?

10% Reduction in price: 8
80-8 = 72

10% increase in sales: 200
2000 + 200 = 2200

Plugin to our formula:
(2200 * 72) - (2200 * 32) - 72,000 = ?
158400 - 70400 - 72,000 = 16,000

Since this number is positive, this is income. (D)
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<u>Solution and Explanation:</u>

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=\$ 5200+(2000 * \$ 2.40 \text { per dozen })

=$10000

<u>Answer:2 </u>The internal rate of return promised by the new machine to the nearest whole percent is:

Particulars  Year  Amount ($)

Cash outflow  0  -40000

Cash inflow  1  10000

                2  10000

               3  10000

                4  10000

               5  10000

              6  10000

IRR   13%

=13% using IRR function in excel.

<u>Answer:3</u> IRR=17%

with salvage value

Particulars  Year  Amount ($)

Cash outflow  0  -40000

Cash inflow  1  10000

                 2  10000

                3  10000

               4  10000

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5 0
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Answer: 1.356345

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Based on the scenario and information provided in the question, the 90-day forward rate will be calculated as:

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= 1.35 × 1.065/1.06

= 1.35 × 1.0047

= 1.356345

3 0
3 years ago
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