Question 1

Ruby Limited manufactures and sells desks. Price and cost data for the company are provided below:

Selling price per unit $250

Variable costs per unit

Manufacturing

Direct materials $82

Direct labour $40

Variable manufacturing overhead $60

Variable selling and administrative costs $16

Fixed manufacturing overhead	$1,440,000
Fixed selling and administrative costs	$2,070,000
Forecasted annual sales	$17,500,000

Annual fixed costs

Ruby Limited pays income taxes of 30 percent.

Required:

1. What is Ruby Limiteds breakeven point in units?

2. How many units would Ruby Limited have to sell in order to earn a profit of

$1,820,000 after tax?

3. If the companys direct labour costs increase by 10 percent, how many units will the company have to sell next year to reach its breakeven point?

4. Ruby Limited manufactures chairs using a completely automated production process. Its major competitor, Emerald Industries, assembles its products manually. How will these two companies cost structures differ? What is operating leverage factor? Which company will have a higher operating leverage factor? Explain.

5. How can a company with multiple products compute its breakeven point?

(5 + 3 + 4 + 6 + 4 = 22 marks)