Question

Phoenix-based CompTronics manufactures audio speakers for desktop computers. The following data relate to the period just ended when the company produced and sold 44,000 speaker sets:

Sales	$	3,608,000
Variable costs		902,000
Fixed costs		2,310,000

Management is considering relocating its manufacturing facilities to northern Mexico to reduce costs. Variable costs are expected to average $18.00 per set; annual fixed costs are anticipated to be $1,986,000. (In the following requirements, ignore income taxes.)

2.Determine the break-even point in speaker sets if operations are shifted to Mexico. (Do not round intermediate calculations and round your final answer up to nearest whole number.)

3. Assume that management desires to achieve the Mexican break-even point; however, operations will remain in the United States.

a.	If variable costs remain constant, by how much must fixed costs change? (Round your final answer to nearest whole dollar.)

Answer 1

Selling price per unit ($3,608,000/44,000)	$   82
Less: Variable cost per unit	$   18
Contribution margin per unit	$   64

2.

Break even point = Fixed cost / Contribution margin per unit

Break even point = $1,986,000 / $64

Break even point = 31,031 Units

3a.

Sales ($82*31,031)	$   2,544,542
Less: Variable expenses ($902,000/44,000*31,031)	$      636,136
Fixed cost should be	$   1,908,407

Fixed cost should be changed by : $401,593 ($2,310,000 - $1,908,407)

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