Problem
The following information was extracted from the accounting records of a local Bike Manufacturing Company:
Sales price per unit $ 1,200
Variable manufacturing cost per unit $400
Variable Selling cost per unit $100
Total fixed costs $480,000
I. Calculate the break-even point in units and in $ amounts.
II. How many units must be sold to earn an operating income of $80,000?
III. The marketing manager believes that a new machine would improve the quality of goods but will increase depreciation cost by $120,000, the sales price can be increased by 10 percent and the variable manufacturing costs will decrease by 20 percent. Calculate the new break-even point in units.
IV. Using the information in part III, what sales level in dollars is needed to earn an operating income of $100,000?