Question
Parkins Company produces and sells a single product. The company's income statement for the most recent month is given below: Sales (6,000 units at $40
Parkins Company produces and sells a single product. The company's income statement for the most recent month is given below: Sales (6,000 units at $40 per unit)---------- $240,000 Less manufacturing costs: Direct materials-----------------------$48,000 Direct labor (variable)---------------- 60,000 Variable factory overhead------------ 12,000 Fixed factory overhead--------------- 30,000 ---------------- Gross margin---------------------------- 90,000 Less selling and other expenses: Variable selling and other expenses 24,000 Fixed selling and other expenses 42,000 66,000 ------------ Net operating income----------------- $24,000 There are no beginning or ending inventories. Required: a. Compute the company's monthly break-even point in units of product. b. What would the company's monthly net operating income be if sales increased by 25% and there is no change in total fixed expenses? c. What dollar sales must the company achieve in order to earn a net operating income of $50,000 per month? d. The company has decided to automate a portion of its operations. The change will reduce direct labor costs per unit by 40 percent, but it will double the costs for fixed factory overhead. Compute the new break-even point in units.
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