Houston-based Advanced Electronics manufactures audio speakers for desktop computers. The following data relate to the period just ended when the company produced and sold 40,000 speaker sets:

Sales	$	3,360,000
Variable costs		840,000
Fixed costs		2,310,000

Management is considering relocating its manufacturing facilities to northern Mexico to reduce costs. Variable costs are expected to average $20.00 per set; annual fixed costs are anticipated to be $1,986,000. (In the following requirements, ignore income taxes.)

Required:

1. Calculate the companys current income and determine the level of dollar sales needed to double that figure, assuming that manufacturing operations remain in the United States.
2. Determine the break-even point in speaker sets if operations are shifted to Mexico.
3. Assume that management desires to achieve the Mexican break-even point; however, operations will remain in the United States.

1. If variable costs remain constant, by how much must fixed costs change?
2. If fixed costs remain constant, by how much must unit variable cost change?

4. Determine the impact (increase, decrease, or no effect) of the following operating changes.

Req.1

Calculate the companys current income and determine the level of dollar sales needed to double that figure, assuming that manufacturing operations remain in the United States. (Do not round intermediate calculations and round your final answers to nearest whole dollar.)

Current income
Required dollar sales

Req.2

Determine the break-even point in speaker sets if operations are shifted to Mexico. (Do not round intermediate calculationsand round your final answer up to nearest whole number.)

Break-even point

units

Req.3

Assume that management desires to achieve the Mexican break-even point; however, operations will remain in the United States.

a. If variable costs remain constant, by how much must fixed costs change? (Round your intermediate unit calculations to the nearest whole number and round your final answers to the nearest whole dollar.)

b. If fixed costs remain constant, by how much must unit variable cost change? (Round your intermediate unit calculations to the nearest whole number and round your final answer to 2 decimal places.)

a.	Fixed costs		by
b.	Variable costs		by		per unit

Req.4

Determine the impact (increase, decrease, or no effect) of the following operating changes.

a.	Effect of an increase in direct material costs on the break-even point.
b.	Effect of an increase in fixed administrative costs on the unit contribution margin.
c.	Effect of an increase in the unit contribution margin on net income.
d.	Effect of a decrease in the number of units sold on the break-even point.