CH1 5P

Problem 5P

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Chapter 1

1P

2P

3P

4P

5P

Chapter 2

Chapter 2C

Chapter 3

Chapter 4C

Chapter 5

Chapter 5C

Chapter 6

Chapter 6C

Chapter 7

Chapter 7C

Chapter 9

Chapter 9C

Chapter 10

Chapter 10C

Chapter 11

Chapter 11C

Chapter 12

Chapter 12C

Chapter 13

Chapter 13C

Chapter 14

Problem

Multiple-Product Cost-Volume-Profit Analysis (CMA, adapted)

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 companys performance for the current fiscal year. Projected sales through December 31, 1998, suggest that 120,000 tape recorders and 190,000 electronic calculators will be sold this year. The projected earnings statement, which follows, shows that Hewtex will not meet its earnings goal of 9% of sales after taxes.

Required

(1) Assuming that the sales mix in the planning documents is achieved, how many tape recorder and electronic calculator units would Hewtex Electronics have to sell in 1998 to break even?

HEWTEX ELECTRONICS Projected Earnings Statement For the Year Ended December 31, 1998
	120,000 units Tape Recorders		190,000 units Electronic Calculators		Total
	Total Amount (000 omitted)	Per Unit	Total Amount (000 omitted)	Per Unit	(000 omitted)
Sales	$1,800	$15.00	$4,480	$28.00	$6,280
Flexible costs
Materials	480	4.00	1,140	6.00	1,620
Labor	360	3.00	1.710	9.00	2,070
Other	120	1.00	570	3.00	690
Committed costs	280	2.33	1.400	7.37	1.680
Total costs	1,240	10.33	4,820	25,37	6.060
Gross margin	560	4,67	500	2.63	1.060
Facility sustaining costs					2.000
Net income before income taxes					1940

(2) What volume of sales is required if Hewiex Electronics is to earn a profit in 1999 equal to 9% of sales after taxes? Hewtex Electronics faces a tax rate of 42%.

(3) Hewtex Electronics now allocates committed costs based on flexible labor costs A study has determined that committed costs are as follows: (I) supervisory costs for tape recorder productionS500,000; (2) supervisory salaries for electronic calculator production$600,000; (3) the balance of the committed costs are proportional to the number of batches of production. Hewtex Electronics schedules tape recorders for production in batches of 1000, and electronic calculators are made in batches of 10,000. Finally, S300.000 of what was originally classified as facility-sustaining cost was actually attributable to tape recorders, and $400.000 was attributable to the electronic calculator line. Recast the original financial statements to correct the costing errors due to misclassification.