Problem 3 Krystal Klear Corp. produces two types of water filters. One attaches to the faucet...

Problem 3
Krystal Klear Corp. produces two types of water filters. One attaches to the faucet and the other is a pitcher-cum-filter that only purifies water for drinking. The unit that attaches to the faucet is sold for $ 100 and has variable costs of $ 35. The pitcher-cum-filter sells for $ 120 and variable costs of $ 30. The firm sells two faucet filters for every three pitchers sold. Fixed costs total
$ 1,200,000.
a.   What is the breakeven point in sales $ for each type of filter at the current sales mix?
b.   The firm is considering buying new production equipment. This will cause fixed costs to increase $ 208,000 annually. Variable costs for the faucet and the pitcher units will decrease by $ 5 and $ 10, respectively. Presuming the same sales mix, how many of each type of filter does Krystal Klear need to sell to break even?
c.   Presuming the same sales mix, at what total sales level would the firm be indifferent between using the old equipment and buying the new production equipment? If total sales are expected to be 24,000 units, should Krystal Klear buy the new production equipment? Provide support for your answer (i.e., operating income old vs new).

Solutions

Expert Solution

Answer 3

We have to assume the number of bundles where the company will be indfferent is "x"

Thus, for new equipment - operating income would be

= $440x - $1408000

Also, for old equipment - operating income would be

= $400x - $1200000

Therefore, the point of difference can be calculated as follow, by equating the both:

$440x - $1408000 = $400x - $1200000

solving for x, we get

x = 5200 bundles - is the point of indifference

Thus, at sales of 26000 units i.e. 5200 bundles, the company would be indifferent between both the machines - can use either of them.

Also, as the question has asked when 24000 units sold which would machine would be choosen - the new machine equipment will be beneficial in such cases as operating income will be higher with it rather than using the old machine.

Please give it a thumbs up - it always helps me to be more motivated :)

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

A manufacturing company produces water filters for home refrigerators. The process has typically produced some defective...

A manufacturing company produces water filters for home refrigerators. The process has typically produced some defective liters. A random sample of 300 liters yielded 12 defects. Construct and interpret a 90% confidence interval for the true proportion of defective water liters.

For the problem below: "A food company produces two types of turkey cutlets for sale to...

For the problem below: "A food company produces two types of turkey cutlets for sale to fast-food restaurants. Each type of cutlet consists of white meat and dark meat. Cutlet 1 sells for $4/lb and must consist of at least 70% white meat. Cutlet 2 sells for $3/lb and must consist of at least 60% white meat. At most 6000 pounds of cutlet 1 and 2000 pounds of cutlet 2 can be sold. The two typesof turkey used to manufacture...

Give examples of 3 distinct types of filters (band pass, high pass, and low pass). Create...

Give examples of 3 distinct types of filters (band pass, high pass, and low pass). Create a diagram and a statement of the characteristic frequency scale of each in terms of the component values in the circuit.

Sweet and Salty corp is a holding company (HoldCo) with two subsidiaries. One sub (Salty) produces...

Sweet and Salty corp is a holding company (HoldCo) with two subsidiaries. One sub (Salty) produces salty snacks and the other (Sweet) produces healthy sweet soft drinks. Tastebud an individual owns 60% of HoldCo. In which she has a basis of $6,000. She feels that the emphasis on healthy food is causing Hold Co’s stock to be depressed in value. She proposes that Hold Co distribute Salty to the shareholders ratably so that each shareholder will own their proportionate amount...

Activity-based costing problem Factory A produces golf carts. One of its plants in Texas produces two...

Activity-based costing problem Factory A produces golf carts. One of its plants in Texas produces two versions of carts: a basic model and a deluxe model. The deluxe model has a sturdier frame, a higher horsepower engine, bigger tires, and softer seats. At the beginning of the year, the following data were prepared by the controller’s office for this Texas plant: Basic Deluxe Expected Quantity to Produce 20,000 carts 10,000 carts Selling Price $ 1,800 $ 3,600...

3. Fifer Company produces two types of entry doors: the Hollow Core and the Solid Door...

3. Fifer Company produces two types of entry doors: the Hollow Core and the Solid Door models. The Company has used direct labor dollars to allocate the overhead cost $47,450,000. The company’s CFO, Brian Smythe , has offered the following information regarding the two products: Hollow Core Solid Door Sales in units 400,000 50,000 Sales price per unit $475.00 $650.00 Direct materials per unit 55.00 130.00 Direct labor cost per unit 75.00 50.00 The company has hired you...

A rare deletion on the long arm of chromosome 15 (15q11-13) produces one of two types...

A rare deletion on the long arm of chromosome 15 (15q11-13) produces one of two types of genetic disorders in humans. These are Prader-Willi syndrome (obesity, hypotonia, hypogonadism) and Angelman syndrome (epilepsy, tremors, perpetual smiling). Three imprinted genes are present in the deleted region. These are snrpn and ndn (lack of which is associated with Prader-Willi) and ube3A (lack of which is associated with Angelman). snrpn and ndn are paternally imprinted for expression and ube3A is maternally imprinted. Charlie and...

Problem 9-15 Bay Oil produces two types of fuels (regular and super) by mixing three ingredients....

Problem 9-15 Bay Oil produces two types of fuels (regular and super) by mixing three ingredients. The major distinguishing feature of the two products is the octane level required. Regular fuel must have a minimum octane level of 90 while super must have a level of at least 100. The cost per barrel, octane levels, and available amounts (in barrels) for the upcoming two-week period are shown in the following table. Likewise, the maximum demand for each end product and...

3. Sales mix and CVP Analysis: Goalie’s Ball, Inc. produces and sells two different types of...

3. Sales mix and CVP Analysis: Goalie’s Ball, Inc. produces and sells two different types of soccer goals: basic and premium. Monthly information regarding the two types of goals are shown below: Basic Premium Total Sales $ 1,080,000 $720,000 $1,800,000 Variable costs $315,400 $294,100 $609,500 Fixed expenses are $517,250 per month in total for the company. Determine the sales mix for the two products Determine the contribution margin ratio for each of the two products (round your decimal answer to...

Module 3 Individual Problems M3_IND1. A furniture cabinet maker produces two types of cabinets, Classic and...

Module 3 Individual Problems M3_IND1. A furniture cabinet maker produces two types of cabinets, Classic and Modern, that house and hide LCD TVs. The resource requirements and profit for the two types of cabinets are shown below. 800 12 350 The firm has a budget of $185,000 to spend on materials. The firm has 2,000 labor hours are available for use. What is the best combination of furniture cabinets to be made? Solve this two decision variable problem using the...

Subjects