Power-up Corporation is a manufacturer of Extension Boards sold on a private-label basis to large discount chains. The company has capacity to produce 35,000 Extension Boards a year. Planned production for the current year is 20,000 units and involves working the plant for a single shift. An analysis of the companys cost records reveals the following information for the 20,000 unit production level:

Variable Cost per Converter:

Manufacturing Cost per Unit $8

Selling and Administrative Cost per Unit $2

Fixed Costs Allocated to This Product Line:

Manufacturing Costs $70,000

Selling and Administrative Costs $50,000

Current Selling Price per Unit: $18

New Orders from Customers:

Order 1:

Power-ups sales manager just received a large order from a new customer for 10,000 converters, but at a price of $16 each.

Order 2:

An overseas customer made an order for 15,000 Extension Boards. Customer is willing to buy at the current selling price of $18. But Power-up will have to bear the following additional cost if they are to accept this order.

Packaging and Delivery Cost per Unit $2

Salary to a New Supervisor for the Job $6,000

Required:

1. Explain what is meant by the terms: breakeven point and target profit. (5 marks)
2. Calculate the number of converters Power-up needs to produce and sell in order to breakeven.

(5 marks)

3. Calculate the profit of Power-up for the period before the new orders.

(5 marks)

4. Evaluate the two new orders received from customers. In your evaluation calculate the effect on Power ups profit due to each of the order separately.

(5 marks)

5. Recommend which order has to be taken, if any of the order has to be accepted.

(5 marks)