V$.2003$ Preliminary results $-$ prepared on December $3,2003.$

The top management team of Western Chipsets examined the firm's operations through

the first $11$ months of $2003$ on December $3.$ The actual results and the estimates for

December $2003$ are below.

The December estimates were prepared based on the number of firm orders received by

the firm for delivery in the month of December. No further orders were anticipated.

The direct materials and direct labor costs were prepared based on the actual average unit

DM and DL usage through November $($ $$4\mathrm{.}47$ and $$1\mathrm{.}21,$ respectively$).$ These were

expected to be essentially the same in December.

Finally, overhead and G&A amounts for December were prepared using all of the

payments scheduled to be made for equipment leases, facility leases, taxes, and other

G&A amounts. Western Chipsets could not postpone paying for any of these items. All

overhead and G&A costs are fixed $-$ they do not go up or down with the number of units,

at least not in the short run.

$2003$

Results

Through Dec$-03$

Nov$-03$ Estimates Total

Production and sales $7,290,000312,0007,602,000$

Average selling price $ $36\mathrm{.}00$ $ $36\mathrm{.}00$ $ $36\mathrm{.}00$

Revenues $ $262,440,000$ $ $11,232,000$ $ $273,672,000$

Direct materials usage $32,586,3001,394,64033,980,940$

Direct labor usage $8,820,900377,5209,198,420$

Direct costs $41,407,2001,772,16043,179,360$

Overhead $90,000,00019,000,000109,000,000$

CGS $131,407,20020,772,160152,179,360$

$2003$

Results

Through Dec$-03$

Nov$-03$ Estimates Total

Revenues $ $262,440,000$ $ $11,232,000$ $ $273,672,000$

CGS $131,407,20020,772,160152,179,360$

Gross margin $ $131,032,800$ $ $(9,540,160)$ $ $121,492,640$

G&A $($incl$.$ taxes$)19,000,0004,300,00023,300,000$

Net income $ $112,032,800$ $ $(13,840,160)$ $ $98,192,640$

How many units must be produced and inventoried for Western Chipsets to exactly

meet the $$100,000,000$ option trigger? Since DM and DL are variable, do we need to include these costs in the additional units calculation? Cost accounting, and might be using absoprtion costing method.