AudioFriend manufactures audio speakers for tablet computers. The following data relate to the period just ended, when the company produced and sold 42 000 speaker sets:

Sales .................................................$4 032 000

Variable costs ....................................... 1 008 000

Fixed costs ........................................... 2 736 000

The company's management is considering relocating its manufacturing operations from Darwin to China to reduce costs. If this happens, variable costs are expected to average $21.60 per set an costs are anticipated to be $2 380 800. (Ignore income taxes.)

Required:

1. Calculate the company's current profit and determine the level of sales (in dollars) needed to double that figure, assuming that manufacturing operations remain in Darwin.

2. Determine the break-even point if operations are shifted to China.

3. Assume that management desires to achieve the break-even point calculated for China in requirement 2. However, it has now decided to keep operations in Darwin.

(a) If unit variable costs remain constant, what level of fixed costs is needed to achieve the desired break-even point?

(b) If fixed costs remain constant, what level of unit variable costs is needed to achieve the desired break-even point?

4. Explain the impact (increase, decrease, or no effect) of the following operating changes

(a) Impact of an increase in direct material costs on the break-even point.

(b) Impact of an increase in fixed administrative costs on the unit contribution margin.

(c) Impact of an increase in the unit contribution margin on net profit.

(d) Impact of a decrease in the number of units sold on the break-even point.