Deng Corp. produces hydraulic lifts that are used by hospitals to move bedridden patients. The costs of
manufacturing and marketing the hydraulic lifts at the company’s standard normal volume of 3,000 units
per month are as follows:

Cost per Unit of Hydraulic Lifts
Unit Manufacturing Costs
Variable materials . . . . . . . . . . . . . . . . . . $ 550
Variable labour . . . . . . . . . . . . . . . . . . . . 825
Variable overhead . . . . . . . . . . . . . . . . . . 420
Fixed overhead . . . . . . . . . . . . . . . . . . . . 660
Total unit manufacturing costs. . . . . . . $ 2,455
Unit Marketing Costs
Variable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 275
Fixed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 770
Total unit marketing costs. . . . . . . . . . . 1,045
Total unit costs . . . . . . . . . . . . . . . . . . . . $ 3,500

Required:

1. At a sales price of $4,350 per unit, calculate (a) the break-even volume in units and (b) the break-even sales in dollars.

2. Market research indicates that, if the unit sale price were reduced from $4,350 to $3,850, the monthly sales volume would increase to 3,500 units, which is well within production capacity limitations. Assuming the same cost patterns as shown above, what would be the dollar impact on monthly sales, costs, and income? Should the price be reduced?

3. Deng is considering implementing a quality inspection system, which will increase the fixed manufacturing overhead costs per unit to $705. However, this will reduce the average materials, labour, and variable overhead costs by $15, $17, and $13 per unit, respectively. Compute the new break-even sales in units and dollars. At a sales level of 3,000 units, will the implementation of the quality inspection system result in a higher profit? Compute the profit impact of this change at a sales level of 3,500 units. Comment on the results.