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Parkins Company produces and sells a single product. The company's income statement for the most recent month is given below:
Sales (6,000 units at $40 per unit)
$240,000
Less manufacturing costs:
Direct materials
$48,000
Direct labor (variable)
60,000
Variable factory overhead
12,000
Fixed factory overhead
30,000
150,000
Gross margin
90,000
Less selling and other expenses:
Variable selling and other expenses
24,000
Fixed selling and other expenses
42,000
66,000
Net operating income
$ 24,000
There are no beginning or ending inventories.
Required:
a. Compute the company's monthly break-even point in units of product.
b. What would the company's monthly net operating income be if sales increased by 25% and there is no change in total fixed expenses?
c. What dollar sales must the company achieve in order to earn a net operating income of $50,000 per month?
d. The company has decided to automate a portion of its operations. The change will reduce direct labor costs per unit by 40 percent, but it will double the costs for fixed factory overhead. Compute the new break-even point in units.
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