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Computer Graphics ( CG ) is a small manufacturer of electronic products for computers with graphics capabilities. The company has succeeded by being very innovative
Computer Graphics CG is a small manufacturer of electronic products for computers with graphics capabilities. The company has succeeded by being very innovative in product design. As a spinoff of a large electronics manufacturer ElecTech CG management has extensive experience in both marketing and manufacturing in the electronics industry. A long list of equity investors is betting that the firm will really take off because of the growth of specialized graphics software and the increased demand for computers with enhanced graphics capability. A number of market analysts say, however, that the market for the firms products is somewhat risky, as it is for many hightech startups, because of the number of new competitors entering the market and CGs unproven technology.Required
Compute the contribution margin per unit and the breakeven point in units for CB both before and after the proposed
reengineering project. Assume all setup costs are included in fixed overhead. Round "Contribution margin per unit" to
decimal places and "Breakeven" answers up to the nearest whole number.
CGs main product is a circuit board CB used in computers with enhanced graphics capabilities. Prices vary depending on the terms of sale and the size of the purchase; the average price for the CB is $ If the firm is successful, it might be able to raise prices, but it also might have to reduce the price because of increased competition. The firm expects to sell units in the coming year, and sales are expected to increase in the following years. The future for CG looks very bright indeed, but the company is new and has not developed a strong financial base. Cash flow management is a critical feature of the firms financial management, and top management must watch cash flow numbers closely.
At present, CG is manufacturing the CB in a plant leased from ElecTech using some equipment purchased from ElecTech. CG manufactures about percent of the parts in this circuit board.
CG management is considering a significant reengineering project to significantly change the plant and manufacturing process. The projects objective is to increase the number of purchased parts to about and to reduce the complexity of the manufacturing process. This would also permit CG to remove some leased equipment and to sell some of the most expensive equipment in the plant.
The perunit manufacturing costs for units of CB follow:
Current Manufacturing Costs Proposed Manufacturing Costs
Materials and purchased parts $ $
Direct labor
Variable overhead
Fixed overhead
Manufacturing information for CB:
Number of setups
Batch size
Cost per setup $ $
Machine hours
General, selling, and administrative costs are $ variable cost per unit and $ fixed; these costs are not expected to differ for either the current or the proposed manufacturing plan.
Required
Compute the contribution margin per unit and the breakeven point in units for CB both before and after the proposed reengineering project. Assume all setup costs are included in fixed overhead.
Determine the number of sales units at which CG would be indifferent as to the current manufacturing plan or the proposed plan.
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