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Korosa and Delancey, Ltd. Is studying the acquisition of two electrical component insertion systems for producing its sole product, the universal gismo. Data relevant to
Korosa and Delancey, Ltd. Is studying the acquisition of two electrical component insertion systems for producing its sole product, the universal gismo. Data relevant to the systems follow. Model A: Variable costs, $8.00 per unit Annual fixed costs, $1,971,200 Model B: Variable costs, $6.40 per unit Annual fixed costs, $2,227,200 Korosa and Delancey's selling price is $32 per unit for the universal gismo, which is subject to a 5 percent sales commission. (ignore income tax) Required: 1.) How many units must the company sell to beak even if Model A is selected? 2.) Which of the two systems would be more profitable if sales and production are expected to average 184,000 units per year ? 3.) Assume Model B requires the purchase of additional equipment that is not reflected in the preceding figures. The equipment will cost $900,000 and will be depreciated over a five-year life by the straight-line method. How many units must the company sell to earn $1,912,800 of income if Model B is selected ? 4.) Ignoring the information presented in requirement (3), at what volume level will management be indifferent between the acquisition of Model A and Model B ? In other words, at what volume level will the annual total cost of each system be equal
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