Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Choman Company has developed a guitar that self-trains people to play like their favorite rock star. The company currently pays a production company to produce

image text in transcribed
Choman Company has developed a guitar that self-trains people to play like their favorite rock star. The company currently pays a production company to produce the guitar for them at a cost of $200 each. Other variable costs total $120 per guitar, and fixed expenses are $1,998,000. Choman currently sells the guitar for $500. NOTE: Solve each requirement as a separate situation and always go back to original data unless otherwise directed. Round all answers to nearest unit or nearest cent. . Calculate Choman's annual breakeven point in units and in sales. b. Prove your answer in (a) by showing a condensed variable cost income statement. c. Assume Choman wants to earn a before-tax Profit of $198,000. How many units must it sell? . Prove your answer in (c) by showing a condensed variable cost income statement. c. Choman is considering raising its selling price to $520. Calculate the new breakeven point in units. cChoman has found a new company to produce the trainer guitar at a lower cost of $175. Calculate the new breakeven point in units. 1. Assume Choman has predicted demand for its guitars to be 12,000 units. What is the lowest price that can be charged in order to earn a $198,000 profit? h. Assume Choman can sell 13.000 units, but it needs to increase advertising costs in order to stimulate the extra demand. Assuming it still wants to earn a $198,000 profit, by how much can Choman increase advertising costs to help achieve its goal? Choman has run into supplier problems and will only be able to supply a total of 10,000 guitars to customers this year. Assuming it has already sold 2,000 guitars at the existing price, that it can reduce fixed costs by $100,000 and unit variable cost by $10, what will the new price need to be in order to still earn a $198,000 profit? Assume the same scenario as letter (c) but the $198,000 is after-tax profit. How many units must Choman sell? Assume a tax rate of 40%

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Managerial Accounting Wileyplus Blackboard Student Package

Authors: Charles E. Davis, Elizabeth Davis

3rd Edition

1119342511, 978-1119342519

More Books

Students also viewed these Accounting questions