Required information

Skip to question

[The following information applies to the questions displayed below.]

Corrigan Enterprises is studying the acquisition of two electrical component insertion systems for producing its sole product, the universal gismo. Data relevant to the systems follow.

Model no. 6754:
	Variable costs, $19.00 per unit
	Annual fixed costs, $986,500

Model no. 4399:
	Variable costs, $11.80 per unit
	Annual fixed costs, $1,114,300

Corrigans selling price is $63 per unit for the universal gismo, which is subject to a 10 percent sales commission. (In the following requirements, ignore income taxes.)

2-a. Calculate the net income of the two systems if sales and production are expected to average 49,000 units per year.

3. Assume Model 4399 requires the purchase of additional equipment that is not reflected in the preceding figures. The equipment will cost $450,000 and will be depreciated over a five-year life by the straight-line method. How many units must Corrigan sell to earn $967,000 of income if Model 4399 is selected? As in requirement (2), sales and production are expected to average 49,000 units per year.

4. Ignoring the information presented in part (3), at what volume level will the annual total cost of each system be equal?