Question 1 Chelsea Inc manufactures and sells Steel golf Shafts The following are forecast for january 2022 Estimated cans of sales 10,000 units Selling price per unit 10 00 Direct materials per unit 2 pounds of steel at $0 40 per pound 0 5 pounds of alloy at $3 00 per pound Direct labor per unit $2 60 per unit Manufacturing Overhead Variable Overhead $1 10 per unit Plant and equipment depreciation $20,000 00 per month Miscellaneous $15,000 00 per month The plant and equipment depreciation and miscellaneous costs are fixed and all other costs are variable Plant capacity is 20,000 units monthly Required Compute the companys breakeven point in unit and sales in Dollar Use the equation method (4 marks) Assume that next month management wants the company to earn a profit of at least $85,000 How many units must be sold to meet this target profit (3 marks) Refer to the original data Compute the companys margin of safety in both Dollar and percentage form (3 marks) Refer to the original data In an effort to increase sales and profits, management is considering the use of a higher quality steel The cost of the steel would increase by $0 20 per pound, but management could eliminate one quality inspector who is paid a salary of $3,500 per month The sales manager estimates that the higher quality steel would increase annual sales by at least 20 Prepare a projected contribution format statement of comprehensive income for next year, based on the above mentioned changes Show answer in total and per unit basis (5 marks) Compute the companys new breakeven point in both units and Dollar Use the contribution formula method (3 marks) Would you recommend the changes to be made Briefly explain your answer (3 marks) Refer to the original data Melvin, the president, is considering introducing a golf shaft using graphite in order to maintain the companys competitive advantage The granite golf shaft will sell at $12 per unit To manufacture and sell one unit of granite golf shaft will cost the company a variable cost of $8 per unit No additional fixed manufacturing overhead cost will be incurred as the company has sufficient manufacturing capacity If the proposal is acceptable, Melvin estimates that the company will be able to sell 12,000 units of Steel based golf shaft and 8,000 units of graphite based golf shaft Supposed that the company continues with the proposal, compute the breakeven in units for each product (4 marks)

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Question 1

Chelsea Inc. manufactures and sells Steel golf Shafts. The following are forecast for january 2022:

Estimated cans of sales	10,000 units
Selling price per unit	10.00

Direct materials per unit
2 pounds of steel at $0.40 per pound
0.5 pounds of alloy at $3.00 per pound
Direct labor per unit	$2.60	per unit
Manufacturing Overhead
Variable Overhead	$1.10	per unit
Plant and equipment depreciation	$20,000.00	per month
Miscellaneous	$15,000.00	per month

The plant and equipment depreciation and miscellaneous costs are fixed and all other costs are variable. Plant capacity is 20,000 units monthly.

Required:

Compute the companys breakeven point in unit and sales in Dollar. Use the equation method.

(4 marks)

Assume that next month management wants the company to earn a profit of at least $85,000. How many units must be sold to meet this target profit?

(3 marks)

Refer to the original data. Compute the companys margin of safety in both Dollar and percentage form.

(3 marks)

Refer to the original data. In an effort to increase sales and profits, management is considering the use of a higher quality steel. The cost of the steel would increase by $0.20 per pound, but management could eliminate one quality inspector who is paid a salary of $3,500 per month. The sales manager estimates that the higher quality steel would increase annual sales by at least 20%.

Prepare a projected contribution format statement of comprehensive income for next year, based on the above mentioned changes. Show answer in total and per unit basis.

(5 marks)

Compute the companys new breakeven point in both units and Dollar. Use the contribution formula method.

(3 marks)

Would you recommend the changes to be made? Briefly explain your answer. (3 marks)

Refer to the original data. Melvin, the president, is considering introducing a golf shaft using graphite in order to maintain the companys competitive advantage. The granite golf shaft will sell at $12 per unit. To manufacture and sell one unit of granite golf shaft will cost the company a variable cost of $8 per unit. No additional fixed manufacturing overhead cost will be incurred as the company has sufficient manufacturing capacity. If the proposal is acceptable, Melvin estimates that the company will be able to sell 12,000 units of Steel based golf shaft and 8,000 units of graphite based golf shaft.

Supposed that the company continues with the proposal, compute the breakeven in units for each product.

(4 marks)