Houston-based Advantage Electronics manufactures audio speakers for desktop computers. The following data relate to the period just ended when the company produced and sold 41,000 speaker sets:

Sales$3,362,000

Variable costs840,000

Fixed costs2,250,000

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.)

1.Calculate the company's current income and determine the level of dollar sales needed to double that figure, assuming that manufacturing operations remain in the United States.

Current Income_________

Required dollar sales_________

2.Determine the break-even point in speaker sets if operations are shifted to Mexico.

Break-even point________ units

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?

Fixed costs________ by_________

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

Variable costs________by__________

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. _______