Hewtex Electronics manufactures two products – tape recorders and electronic calculators <\/p>\n
– and sells them nationally to wholesalers and retailers. The Hewtex management is very <\/p>\n
pleased with the company’s performance for the current fiscal year. Projected sales <\/p>\n
through December 31,20×7, indicate that 70,000 tape recorders and 140,000 electronic <\/p>\n
calculators will be sold this year. The projected earnings statement follows: <\/p>\n
Hewtex Electronics <\/p>\n
Projected Earnings Statement <\/p>\n
For The Year Ended December 31, 20×7 <\/p>\n
Tape Electronic <\/p>\n
Recorders Calculators <\/p>\n
Total Total <\/p>\n
Amount Per Amount Per Total <\/p>\n
(000’s) Unit (000’s) Unit (000’s) <\/p>\n
Sales $1,050 $15.00 $3,150 $22 50 $4,200.00<\/p>\n
Production costs: <\/p>\n
Direct materials 280 4.00 630 4.50 910.00 <\/p>\n
Direct labor 140 2.00 420 3.00 560.00 <\/p>\n
Variable overhead 140 2.00 280 2.00 420.00 <\/p>\n
Fixed overhead 70 1.00 210 1.50 280.00<\/p>\n
630 9.00 1,540 11.00 2,170.00<\/p>\n
Gross margin $ 420 $ 6.00 $1,610 $11.50 2,030.00 <\/p>\n
Fixed selling and administrative 1,040.00<\/p>\n
Net income before income taxes 990.00 <\/p>\n
Income taxes (55 %) 544.50<\/p>\n
Net income $ 445.50<\/p>\n
It shows that Hewtex will exceed its earnings goal of 9% on sales after income taxes. <\/p>\n
The tape recorder business has been fairly stable the last few years, and the company <\/p>\n
does not intend to change the tape recorder price. Competition among manufacturers of <\/p>\n
electronic calculators has been increasing, however. Hewtex’s calculators have been very <\/p>\n
popular with consumers. In order to sustain this interest in their calculators and to meet <\/p>\n
the price reductions expected from competitors, management has decided to reduce the <\/p>\n
wholesale price of its calculator from $22.50 to $20.00 per unit effective January 1, 20×8. <\/p>\n
At the same time, the company plans to spend an additional $57,000 on advertising <\/p>\n
during fiscal year 20×8. As a consequence of these actions, management estimates that <\/p>\n
80% of its total revenue will be derived from calculator sales compared to 75% in 20×7. <\/p>\n
As in prior years, the sales mix is assumed to be the same at all volume levels. <\/p>\n
The total fixed overhead costs will not change in 20×8, nor will the variable overhead <\/p>\n
cost rates (applied on a direct labor hour base). However, the cost of materials and direct <\/p>\n
labor is expected to change. The cost of solid-state electronic components will be cheaper <\/p>\n
in 20×8. Hewtex estimates that material costs will drop 10% for the tape recorders and <\/p>\n
20% for the calculators in 20×8. Direct labor costs for both products will increase 10% in <\/p>\n
the coming year, however. <\/p>\n
Required: <\/p>\n
a. How many tape recorder and electronic calculator units did Hewtex Electronics <\/p>\n
have to sell in 20×7 to break even? <\/p>\n
b. What volume of sales is required if Hewtex Electronics is to earn a profit in 20×8 <\/p>\n
equal to 9% on sales after income taxes? <\/p>\n
c. How many tape recorder and electronic calculator units will Hewtex have to sell in <\/p>\n
20×8 to break even?<\/p>\n","protected":false},"excerpt":{"rendered":"
Hewtex Electronics manufactures two products – tape recorders and electronic calculators – and sells them nationally to wholesalers and retailers. The Hewtex management is very pleased with the company’s performance for the current fiscal year. Projected sales through December 31,20×7, Read More …<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-50335","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/50335","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/comments?post=50335"}],"version-history":[{"count":0,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/50335\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/media?parent=50335"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/categories?post=50335"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/tags?post=50335"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}