In: Accounting
Exercise 7-25 Manufacturing; Using CVP Analysis (LO 7-1, 7-4)
Rosario Company, which is located in Buenos Aires, Argentina,
manufactures a component used in farm machinery. The firm’s fixed
costs are 3,100,000 p per year. The variable cost of each
component is 1,200 p, and the components are sold for
3,200 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.
(Round your answer to the nearest whole
number.)
2. What will the new break-even point be if fixed
costs increase by 15 percent? (Round your answer to the
nearest whole number.)
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 2,700 p will result in orders for 1,000
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