Maurice Tutor

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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
    Oct-2001 - Nov-2016

Category > Accounting Posted 04 Aug 2017 My Price 8.00

PIA Motors

(A) Break-even and target profit

PIA Motors is a small automobile manufacturer. Edward Smith , the

company’s president, is currently evaluating the company’s performance and

is considering options that might be effective at increasing PIA’s profitability.

The company’s controller, Nolly White, has prepared the following cost and

expense estimates for next year based on a sales forecast of $3 000 000.

Direct materials $ 800 000

Direct labor 700 000

Factory overhead 750 000

Selling expenses 300 000

Other administrative expenses 100 000

$2 650 000

After Edward received and reviewed the cost and expense estimates, he

realized that Nolly had given him all the data without breaking it out into its

fixed and variable components. He called her and she told him the following:

‘Factory overhead and selling expenses are 40 per cent variable, but other

administrative expenses are 30 per cent variable.’

 

Required

a) How much revenue must PIA generate to break even? (2 marks)

 

b) Edward Smith has set a target profit of $700 000 for next year. How much

revenue must PIA generate to achieve Edward’s goal? (3 marks)

Answers

Maurice Tutor
(5)
Status NEW Posted 04 Aug 2017 03:08 PM My Price 8.00

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