chapter%2040 - Accounting 2102 Farmer Chapter 4 Practice...

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Accounting 2102 Farmer Chapter 4 Practice Can You Hear Me Now, LLC Can You Hear Me Now, LLC manufactures and sells a single mobile telephone. Can You Hear is considering upgrading its current manufacturing facilities with more modern equipment. Relevant cost data under the current facility and the upgraded facility is provided below: Current Upgrade d Manufacturing Costs Direct Material Cost per Phone $20 $20 Direct Labor Cost per Phone $18 $10 Variable Overhead Cost per Phone $34 $24 Total Fixed Overhead Costs $43,000 $160,000 Selling, General, and Administrative Expenses Variable Expense per Phone $5 $5 Total Fixed Expenses $12,000 $12,000 Under either system, Can You Hear will sell the mobile phones for $125 per phone. A. What is the break even point (in number of phones) if Can You Hear decides NOT to upgrade its facilities? (remember to round up) B. What is the break even point (in number of phones) if Can You Hear decides to upgrade its facilities? (remember to round up) C. At what level of sales (in number of phones) will it start being more profitable for Can You Hear to upgrade its facilities? Page 1 of 7
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Accounting 2102 Farmer Chapter 4 Practice CURRENT VC=77 CM=48 TOTAL FIXED=55,000 UPGRADE VC=59 CM=66 TOTAL FIXED=172,000 A. 55,000/48 . . . ROUND UP TO 1,146 B. 172,000/66 . . . ROUND UP TO 2,607 C. CHANGE IN FC/CHANGE IN CM=117,000/18=6,500 . . . AT 6,500 YOU'RE INDIFFERENT . . . SO THE ANSWER IS 6,501 Page 2 of 7
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Accounting 2102 Farmer Chapter 4 Practice The Mad Hatter Charleston, South Carolina based The Mad Hatter manufactures hats for men, women, and children. For the year ended December 31, 2005, Mad Hatter manufactured and sold
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