1. Owly Corporations furniture division is looking for ways to increase profits from their top of the line office chair, WorkNest Supreme. The current wholesale selling price is $250 with a gross margin of 40%. Fixed manufacturing overhead accounts for 20% of the manufacturing cost per chair. Current fixed manufacturing overhead and selling and administrative expenses for the WorkNest Supreme are $2,275,000.

To increase profits Owly is considering adding a T.E.N.S. device to the WorkNest Supreme. This T.E.N.S. device will cost an additional $65 per unit, which is all variable cost (the dollar amount of fixed manufacturing overhead per chair will not change). Owly will increase the selling price of the chair to $260. Total fixed manufacturing overhead and selling and administrative expenses will increase to $2,700,000.

A. What is the breakeven in units with the current design of the chair?

B. What is the breakeven in units for the improved chair with the T.E.N.S. device?

C. If Owly desires a profit of $156,000 from WorkNest sales, what does sales revenue need to be under the current design of the chair?

D. If Owly desires a profit of $156,000 from WorkNest sales, what does sales revenue need to be under the improved chair with the T.E.N.S. device?

2. Owly Corporations Cherry Point, North Carolina factory produces chairs and sofas. The upholstery machine is used on both products. The factory has 1,000 hours a year in unused capacity on the upholstery machine. Each chair sells for $300 and each sofa sells for $1000. A chair takes 15 minutes of machine time to upholster and a sofa takes 45 minutes machine time to upholster. The variable expense ratio is 90% for chairs and the variable expense ratio for sofas is 40%. There is enough demand to make as many chairs or sofas as possible.

A. What is the additional net operating income if Owly uses the 1,000 hours to make sofas?

B. What is the additional net operating income if Owly uses the 1,000 hours to make chairs?

can you answer question one and two