Question

In: Accounting

Giro Inc. manufactures and sells bicycle safety helmets. Price and cost data for the product follows:...

Giro Inc. manufactures and sells bicycle safety helmets. Price and cost data for the product follows:

Selling price per unit

$25.00

Variable costs per unit:

        Direct Materials

10.50

        Direct Labour

5.00

        Manufacturing overhead

3.00

        Selling expenses

1.30

                Total variable cost per unit

$19.80

Annual total fixed costs:

        Manufacturing overhead

$192,000

        Selling and administrative

276,000

                  Total fixed costs

$468,000

Forecasted annual sales volume in units

120,000

Required:

  1. Calculate Giro’s margin of safety in sales dollars.
  2. How many units does the company have to sell in order to generate a net income figure of $600,000? The company has a 35% tax rate.
  3. Giro is looking at the possibility of renting a machine at an annual cost of $90,000. This machine would allow Giro to reduce its direct labor costs by 15% and its variable manufacturing overhead costs by 5%. Advise Giro as to what the company should do.

Solutions

Expert Solution

ekkarill92 answered 2 years ago
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