Problem 1: Assume that Sony and Microsoft both plan to introduce a new hand-held video game. Sony plans to use a heavily automated production process to produce its product while Microsoft plans to use a labor-intensive production process. The following revenue and cost relationships are provided:

	Sony Game	Microsoft Game
Selling price per unit	$100	$100
Variable costs per unit
Direct materials	$18.00	$18.00
Direct labor	5.00	20.00
Overhead	5.00	20.00
Selling and administrative	2.00	2.00
Annual fixed costs
Overhead	$400,000	$160,000
Selling and administrative	90,000	90,000

Required:

Compute the contribution margin per unit for each company.

Prepare a contribution income statement for each company assuming each company sells 8,000 units.

Compute each firm's net income if the number of units sold increases by 10%

Which firm will have more stable profits when sales change? Why?

Problem 2: Cox Company produces and sells toasters. The following cost information assumes a production and sales volume of 12,000 units:

Required:

Compute the budgeted selling price per unit assuming Cox uses a cost-plus pricing strategy and a markup equal to 50% of production cost.

Compute the firm's total fixed costs.

Compute the firm's contribution margin per unit given the budgeted selling price you computed in Requirement 1.

Compute the firm's breakeven point in units and dollars.

Using the unit contribution margin, compute the firm's estimated profit if 12,000 units are sold.