Corrigan Enterprises is studying the acquisition of two electrical component insertion systems for producing its sole product, the universal gismo. Data relevant to the systems follow.
Model no. 6754:
Variable costs, $18.00 per unit
Annual fixed costs, $986,500
Model no. 4399:
Variable costs, $10.80 per unit
Annual fixed costs, $1,114,400
- Corrigan's selling price is $63 per unit for the universal gismo, which is subject to a 10 percent sales commission. (In the following requirements, ignore income taxes.)
- How many units must the company sell to break even if Model 6754 is selected?
- Calculate the net income of the two systems if sales and production are expected to average 49,000 units per year
- Assume Model 4399 requires the purchase of additional equipment that is not reflected in the preceding figures. The equipment will cost $410,000 and will be depreciated over a five-year life by the straight-line method. How many units must Corrigan sell to earn $961,000 of income if Model 4399 is selected? As in requirement (2), sales and production are expected to average 49,000 units per year.
- Ignoring the information presented in part (3), at what volume level will the annual total cost of each system be equal?