RadCliff Inc manufactures and sells a single product. Current sales are 12,000 units per year. Data for the current year is reflected below.

Selling Price per Unit $75

Manufacturing Costs

Direct Materials $15 per unit

Direct Labor $8 per unit

Variable Overhead $4 per unit

Fixed Overhead $200,000 per year

Non-Manufacturing Costs

Variable selling and administrative $3 per unit

Fixed selling and administrative $250,000 per year

REQUIRED:

Compute the number of units that RadCliff must sell annually to break-even

Compute the dollar margin of safety

The company is considerable implementing the following simultaneous changes.

Reduce the selling price per unit to $72.00

Increase advertising budget which will increase the fixed selling expenses by $20,000 per year.

Use a new supplier of materials. Direct material costs will decrease by 20% by using the new supplier.

If these changes are implemented, the company believes that units sold will increase from 12,000 units to 15,000 units per year.

Compute the new break-even point in units

Compute the new dollar margin of safety

Compute the change in net operating income

Would you advise management to implement these changes? Why or why not?

RadCliff Inc manufactures and sells a single product. Current sales are 12,000 units per year. Data for the current year is reflected below. Selling Price per $75 Unit Manufacturing Costs Direct Materials $15 per unit Direct Labor $8 per unit Variable $4 per unit Overhead $200,000 per Fixed Overhead year Non- Manufacturing Costs Variable selling and $3 per unit administrative Fixed selling and $250,000 per administrative year