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Required information Skip to question [The following information applies to the questions displayed below.] Corrigan Enterprises...

Required information

Skip to question

[The following information applies to the questions displayed below.]

Corrigan Enterprises is studying the acquisition of two electrical component insertion systems for producing its sole product, the universal gismo. Data relevant to the systems follow.

Model no. 6754:
Variable costs, $18.00 per unit
Annual fixed costs, $986,300
Model no. 4399:
Variable costs, $11.80 per unit
Annual fixed costs, $1,114,500

Corrigan’s selling price is $68 per unit for the universal gismo, which is subject to a 15 percent sales commission. (In the following requirements, ignore income taxes.)

  1. Assume Model 4399 requires the purchase of additional equipment that is not reflected in the preceding figures. The equipment will cost $430,000 and will be depreciated over a five-year life by the straight-line method. How many units must Corrigan sell to earn $958,000 of income if Model 4399 is selected? As in requirement (2), sales and production are expected to average 43,000 units per year. (Do not round intermediate calculations and round your final answer up to nearest whole number.)

  2. Ignoring the information presented in part (3), at what volume level will the annual total cost of each system be equal? (Do not round intermediate calculations and round your final answer up to nearest whole number.)

Solutions

Expert Solution

  • Answer :

3. Computation of target sales to earn desired profit.

Target sales = Fixed cost + Target Profit / Contribution

= 1,200,500 + 958,000 / 46

= 46,923.913  

  = 46,924

The sales units are 46,924  units.

  • Workings: ( for your better understanding )

Computation of fixed cost for model no 4399 = $1114,500

Add: Depreciation ( $430,000 / 5 )    = $86,000

Total Fixed Cost     ( 1114,500+ 86000)    =    1,200,500               

                

Contribution margin per unit = Sales - Variable Cost - other variable cost (commission)

= $68 - $11.80  - $10.20   *(68*15% = 10.20)

= $46

4. Indifferent point.

​​​​​​​

putting value of ,

Total annual cost of Model No 6754 =  Total annual cost of model no 4399

ekkarill92 answered 1 year ago
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