Managerial Accounting

1. 24 Points (4 points each)

1. The following data is for two companies, LeBron and Luke:

	Le Bron	Luke
Selling price	$50/unit	$60/unit
Variable manufacturing costs	$15/unit	$12/unit
Variable selling and admin. costs	$ 5/unit	$ 8/unit
Fixed manufacturing costs	$100,000	$300,000
Fixed selling and admin. costs	$ 30,000	$ 80,000

(a) Ignoring income taxes, how many units must LeBron sell to break-even?

(b) Assuming a tax rate of 25%, do you think the breakeven point for LeBron would increase or decrease relative to your breakeven point answer in (a) above? Why?

I will increase because you will have to generate a higher contribution margin per unit by increasing the number of Units produced

(c) At a production and sales volume of 10,000 units, what is the operating leverage of Luke?

(d) Assuming a tax rate of 25%, how many more units must Luke sell than LeBron for each to achieve after tax net income of $150,000?

(e) What is LeBrons product cost per unit under a variable costing system? Provide a specific value.

2. When production levels are expected to decrease within a relevant range, what effects would be anticipated with respect to each of the following (increase, decrease, or no change)?