problem 16.40

Ironjay is considering adding a new product-the Jay-rider. The Jay-rider is a cross between a rowing machine and a stationary bicycle. For the first year. Ironjay estimates that the Jay-rider will cannibalize 600 units of sales from the Jay-flex. Sales of free weight sets will remain unchanged. The Jay-rider will sell $ 180 and have variable costs of $140. The increase in fixed costs to support manufacture of this product is $5.700, Compare the number of Jay-flex machines, free weight sets, and jay-riders that must be sold for Ironjay to break even. For the coming year, is the addition of the Jay-rider a good idea? Why or why not? Why might Ironjay choose to add the Jay-rider anyway? Break-Even in Units and sales Dollars, Margin of Safety Drake Company produces a single product. Last year's income statement is as follows: Sales (20.000 units) $ 1, 218.000 Less: variable costs 812.000 Contribution margin $ 406.000 Less: Fixed costs 300.000 Operating income $ 106.000 Required: Compare the break-even point in units and sales revenue. What was the margin of safely for Drake Company last year? Suppose that Drake Company is considering an investment in new technology that will increase fixed costs by $250,000 per year, but will lower variable costs to 45 percent of sales Units sold will remain unchanged. Prepare a budgeted income statement assuming Drake makes this investment. What is the new break-even point in units, assuming the investment is made? CVP Analysis, Impact of Activity-Based Costing Salem Electronics currently produces two products: a programmable calculator and a tape corder. A recent marketing study indicated that consumers would react favorably to a radio u the Salem brand name. Owner Kenneth Booth was interested in the possibility. Before any commitment was made, however, Kenneth wanted to know what the incremental fixed costs would be and how many radios must be sold to cover these costs. In response, Betty Johnson, the marketing manager, gathered data for the current production to help in projecting overhead costs for the new product. The overhead costs based on 30 direct labor hours follow. (The high-low method using direct labor hours as the independent variable was used to determine the fixed and variable costs.) Fixed variable Materials handling $ $ 18,000