Compute the budgeted break-even point

Assignment Help Corporate Finance
Reference no: EM1348276

A division of Hewlett-Packard Company changed its production operations from one where a large labor force assembled electronic components to an automated production facility dominated by computer-controlled robots. The change was necessary because of fierce competitive pressures.
Improvements in quality, reliability, and flexibility of production schedules were necessary just to match the competition. As a result of the change, variable costs fell and fixed costs increased, as shown in the following assumed budgets:

Old Production Operation New Production Operation
Unit variable cost
Material $ .88 $ .88
Labor 1.22 .22
Total per unit $ 2.10 $ 1.10
Monthly fixed costs
Rent and depreciation $450,000 $ 875,000
Supervisory labor 80,000 175,000
Other 50,000 90,000
Total per month $580,000 $1,140,000

Expected volume is 600,000 units per month, with each unit selling for $3.10. Capacity is 800,000 units.

1. Compute the budgeted profit at the expected volume of 600,000 units under both the old and the new production environments.
2. Compute the budgeted break-even point under both the old and the new production environments.
3. Discuss the effect on profits if volume falls to 500,000 units under both the old and the new production environments.
4. Discuss the effect on profits if volume increases to 700,000 units under both the old and the new production environments.
5. Comment on the riskiness of the new operation versus the old operation.

 

Reference no: EM1348276

What was the carrying amount in the books of bestfoods

What was the carrying amount in the books of Bestfoods - of the net assets  acquired  in 2000? What was the main reason for the negative accounting policy adjustment of a1.1 b

Corporate financial policy 5580

Corporate Financial Policy 5580, Exam Discuss the differences in magnitudes and directions of the cumulative abnormal returns after the announcement of such issuances to suppo

What is the maximum possible subscription price

What is the new market value of the company and how many rights are associated with one of the new shares - what is the maximum possible subscription price? What is the minimu

Define what is meant by interest rate risk

Define what is meant by interest rate risk. Assume you are the manager of a $100 million portfolio of corporate bonds and you believe interest rates will fall. What adjustme

Discuss the process of capital investment

Discuss the process of capital investment and the importance of capital investment decisions for health care managers today. In your Discussion, use three key terms from the

What is the operating profit earned by the four products

What is the operating profit earned by the four products for one quarter? Should the division process Product Delta further or sell it at split-off? What is the effect of the

What years did goggle generate positive cash flow

What years did Goggle generate positive cash flow from its operations? What rate of return did you earn on your investment in Placo's stock? Describe Goggle's main source of f

Determine the combined return of transactions

Over the last year, Dollar has depreciated about 10 percent against the Euro. A year ago you took out a home equity loan in the United State at an interest rate of 8 percent.

Reviews

Write a Review

 
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd