Continuation of Preceding Problem; Activity-Based Costing; Advanced Manufacturing Systems; Ethical Issues

Jupiter Game Company manufactures pocket electronic games. Last year Jupiter sold 25,000 games at $25 each. Total costs amounted to $525,000, of which $150,000 were considered fixed.

An activity-based costing study has revealed that Jupiter's $150,000 of fixed costs include the following components:

Setup (40 setups at $400 per setup)$16,000

Engineering (500 hours at $25 per hour)12,500

Inspection (1,000 inspections at $30 per inspection)30,000

General factory overhead61,500

Total$120,000

Fixed selling and administrative costs30,000

Total fixed costs$150,000

Management is considering the installation of new, highly automated manufacturing equipment that would significantly alter the production process. In addition, management plans a move toward just-in-time inventory and production management. If the new equipment is installed, setups will be quicker and less expensive. Under the proposed JIT approach, there would be 300 setups per year at $50 per setup. Since a total quality control program would accompany the move toward JIT, only 100 inspections would be anticipated annually, at a cost of $45 each. After the installation of the new production system, 800 hours of engineering would be required at a cost of $28 per hour. General factory overhead would increase to $166,100. However, the automated equipment would allow Jupiter to cut its unit variable cost by 20 percent. Moreover, the more consistent product quality anticipated would allow management to raise the price of electronic games to $26 per unit. (Ignore income taxes.)

Required:

a).Compute Jupiter's new break-even point if the proposed automated equipment is installed.

Break even point __________

b)Determine how many units Jupiter will have to sell to show a profit of $140,000, assuming the new technology is adopted.

Number of sales required __________

c).Which ethical standards for managerial accountants are involved here?(You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

• Confidentiality
• Integrity
• Competence
• Credibility
• Loyalty