The Chris Corporation sells only one product.

Chapter 3 Example Questions

Directions: Answer all three questions. Please submit your work in Word or PDF formats only. You can submit an Excel file to support calculations, but please “cut and paste” your solutions into the Word or PDF file. Be sure to show how you did your calculations

Question #1

The Chris Corporation sells only one product. The following is budgeted information for that product:

Annual production and sales capacity (units)	100,000
Budgeted selling price	$25 per unit
Variable cost of goods sold	$10 per unit
Fixed manufacturing costs	$200,000
Variable selling and administrative costs	$5 per unit
Fixed selling and administrative costs	$160,000

Chris’s corporate tax rate is 40%.

a) How many units does Chris need to sell to breakeven?

b) How much revenue does Chris need to generate to breakeven?

c) How many units does Chris need to sell to earn an operating profit (before taxes) of $240,000?

d) How much revenue does Chris need to generate to earn net income (after taxes) of $180,000?

e) Assume Chris is currently producing and selling 54,000 units. By what percentage will operating income change if sales increase by 15% from 54,000 units? Be sure to provide figures to justify your answer.

f) Assume Chris is currently producing and selling 54,000 units. By what percentage will operating income change if sales decrease by 10% from 54,000 units? Be sure to provide figures to justify your answer.

Question #2

A production company is planning to sell tickets to a show for $50 each. It budgets variable costs to be $5 per attendee. Total fixed costs are estimated to be $50,000. The theatre can accommodate up to 1,000 people because of safety concerns. What should the production company do? Why? Be specific in your response.

Question #3

The following is budgeted information for the Samantha Corporation:

	Product 1	Product 2
Annual production & sales	60,000	40,000
Projected selling price	$24	$32
Direct Production Cost Information
Materials (per unit)	$6	$8
Direct Labor (per unit)	$4	$6

Additional information:

• Selling & administrative costs (a mixed cost) are budgeted to be $520,000 at the production and sales listed above. The variable component is $4 per unit (same for each product).
• Manufacturing overhead costs (a mixed cost) are budgeted to be $490,000 at the production and sales listed above. The fixed component is $190,000. Each product uses the same amount of variable manufacturing overhead per unit.

Assuming the budgeted sales mix remains intact, how many units of each product does Samantha need to sell in order to break even?