Question
Paradox, Inc. produces and markets a machinery component called a gromet. October monthly costs to produce 20,000 gromets are as follows: Manufacturing Costs per unit
Paradox, Inc. produces and markets a machinery component called a gromet. October monthly costs to produce 20,000 gromets are as follows:
Manufacturing Costs per unit | |
Direct materials (variable) | $0.60 |
Direct labor (variable) | 0.5 |
Factory overhead | |
- variable | 0.5 |
- fixed | 0.7 |
$2.30 | |
Selling and admin expenses per unit | |
- variable | 0.3 |
- fixed | 0.3 |
Total | $2.90 |
Paradox sells gromets for $4.00 per unit.
a. Assuming unit sales = 20,000 units, prepare a contribution income statement for the month of October (ignore income taxes).
b. Determine Paradoxs monthly:
- break-even point in sales units and in sales dollars.
- Operating leverage ratio
c. Assume Paradox reduces their selling price by $0.50/unit and the number of units sold increases by 1,000:
- Prepare a revised Contribution Income Statement
- Determine the companys new break-even point in unit sales and sales dollars.
- Determine the companys new operating leverage ratio.
d. Using the original facts, before part c., compute Paradoxs % change in profits, if unit sales increase by 10% .
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