You have recently been appointed as a senior accountant at an automobile company. You notice that no one has created method to apply overhead to the products, and they are currently being sold without this value added to them. Currently all overhead is considered an administrative expense on the profit/loss statement as they aren't sure which product to apply it to. Understanding that this has an impact on reporting, and decision making, you have decided to implement a method of traditional based costing. You're pretty sure that using job costing is the way to go. From what you've been told by your support staff, the amount to tires used is a good indicator of how much overhead relates to that product. Of the overhead applied, approximately 30% is variable. For the direct materials, approximately 40% is variable, while only 10% of the direct labour is considered variable. The market is infinite and will accept as many vehicles as you are willing to produce.

1) How many units, of each product, do you need to produce in order to make a profit of $500. Provide support.

You have now been approached by a consultant who claims that they can increase your sales of each product by 20% if you are willing to pay them $300 each year.

2) Is this a good idea, why? Provide support.

3) What is the new breakeven in dollars? Provide support.