Maurice Tutor

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    Argosy University/ Phoniex University/
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Category > Accounting Posted 24 Sep 2017 My Price 9.00

Mc Lennon Company

Breakeven Analysis and Pricing

Mc Lennon Company has a plant capacity of 100,000 units per year, but its budget for this year indicates that only 60,000 units will be produced and sold. The entire budget for this year is as follows:

Sales (60,000 units at $4)

  

$240,000

Less cost of goods produced (based on

    

production of 60,000 units)

    

Direct materials (variable)

60,000

Direct labor (variable)

30,000

  

Variable over head costs

45,000

  

Fixed overhead costs

75,000

  

Total cost of goods produced

  

$210,000

Gross margin

  

$30,000

Less selling and administrative expenses

    

Selling (fixed)

$24,000

  

Administrative (fixed)

$36,000

  

Total selling and administrative expenses

  

60,000

Operating income (loss)

  

($30,000)

1. Given the budgeted selling price and cost data, how many units would McLennon have to sell to break even? (Hint: Be sure to consider selling and administrative expenses.)

2. Market research indicates that if Mc Lennon were to drop its selling price to $3.80 per unit, it could sell 100,000 units. Would you recommend the drop in price? What would the new operating income or loss be?

Answers

Maurice Tutor
(5)
Status NEW Posted 24 Sep 2017 11:09 PM My Price 9.00

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