Hewtex Electronics manufactures two products-tape recorders and electronic calculators-and sells them nationally to wholesalers and retailers. The Hewtex management is very pleased with the company's performance for the current fiscal year. Projected sales through December 31, 20X0, indicate that 70,000 tape recorders and 140,000 electronic calculators will be sold this year. The projected earnings statement, which appears below, shows that Hewtex will exceed its earnings goal of 9 percent on sales after taxes. The tape recorder business has been fairly stable the last few years, and the company does not intend to change the tape recorder price. However, the competition among manufacturers of electronic calculators has been increasing. Hewtex's calculators have been very popular with consumers. In order to sustain this interest in their calculators and to meet the price reductions expected from competitors, management has decided to reduce the wholesale price of its calculator from \(\$ 22.50\) to \(\$ 20.00\) per unit effective January \(1,20 \mathrm{X} 1\). At the same time the company plans to spend an additional \(\$ 57,000\) on advertising during fiscal year 20X1. As a consequence of these actions, management estimates that 80 percent of its total revenue will be derived from calculator sales as compared to 75 percent in \(20 \mathrm{X} 0\). As in prior years, the sales mix is assumed to be the same at all volume levels.

The total fixed overhead costs will not change in \(20 \mathrm{X} 1\), nor will the variable overhead cost rates (applied on a direct labor hour basis). However, the cost of materials and direct labor is expected to change. The cost of solid state electronic components will be cheaper in 20X1. Hewtex estimates that material costs will drop 10 percent for the tape recorders and 20 percent for the calculators in \(20 \mathrm{X} 1\). However, direct labor costs for both products will increase 10 percent in the coming year.
{Required:}

a. How many tape recorder and electronic calculator units did Hewtex Electronics have to sell in \(20 \times 0\) to break even?

b. What volume of sales is required if Hewtex Electronics is to earn a profit in 20X1 equal to 9 percent on sales after taxes?

c. How many tape recorder and electronic calculator units will Hewtex have to sell in \(20 \times 1\) to break even?

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Hewtex Electronics Projected Earning Statement For the Year Ended December 31, 20X0 Tape Recorders Electronic Calculators Total Total Amount Total Amount (000 Amount (000 (000 omitted) Per Unit omitted) Per Unit omitted) Sales Production costs: Materials Direct Labor $1,050 $15.00 $3,150 $22.50 $4,200.00 $ 280 $ 4.00 $ 630 $ 4.50 $ 910.00 140 2.00 420 3.00 560.00 Variable Overhead 140 2.00 280 2.00 420.00 Fixed Overhead 70 1.00 210 1.50 280.00 Total Production Costs $ 630 $9.00 $1,540 $11.00 $2,170,00 Gross Margin $ 420 $ 6.00 $1,610 $11.50 $ 2,030.00 Fixed selling and administrative Net Income before income tax Income Taxes (55%) Net Income 1,040.00 $ 990.00 544.50 $ 445.50