15 May IDENTIFY FOUR FACTORS THAT LOCKHART MANUFACTURING MIGHT CONSIDER BEFORE SELECTING EITHER THE CURRENT METHOD OF PRODUCTION OR THE AUTOMATED METHOD OF PRODUCTION.
Sales Mix; MultiProduct BreakEven Analysis
Smithen Company, a wholesale distributor, has been operating for only a few months. The company
sells three products—sinks, mirrors, and vanities. Budgeted sales by product and in total for the
coming month are shown below based on planned unit sales as follows:
d
d
d
Breakeven point in unit sales:
d
As shown by these data, operating income is budgeted at $36,400 for the month, breakeven sales
dollars at $430,000, and breakeven unit sales at 1,720.
Assume that actual sales for the month total $504,000 (2,100 units), with the CM ratio and per unit
amounts the same as budgeted. Actual fixed expenses are the same as budgeted, $223,600. Actual
sales by product are as follows: sinks, $126,000 (525 units); mirrors, $210,000 (1,050 units); and
vanities, $168,000 (525 units).
Required:
1 Prepare a contribution format income statement for the month based on actual sales data.
Present the income statement in the format shown above.
1 Compute the breakeven point in sales dollars for the month, based on the actual data.
1 Calculate the breakeven point in unit sales for the month, based on the actual data.
1 Considering the fact that the company exceeded its $500,000 sales budget for the month, the
president is shocked at the results shown on your income statement in (1) above. Prepare a brief
memo for the president explaining why both the operating results and the breakeven point in
sales dollars are different from what was budgeted.
Changes in Cost Structure; BreakEven Analysis; Indifference
Lockhart Manufacturing Co. is manufacturing a new product for the following costs:
d
The production manager feels that savings could be achieved by automating the plant. If the plant
was automated, the costs would change as follows:
There would be no change to any other costs or to the selling price.
d
Required
1 Calculate the breakeven point in annual unit sales for the new product if Lockhart Manufacturing
uses the
a Current method of production.
a Automated method of production.
1 Calculate the annual number of unit sales at which Lockhart Manufacturing would be indifferent
about which manufacturing method is used. If demand exceeds this amount, which method of
production should be used?
1 Identify four factors that Lockhart Manufacturing might consider before selecting either the
current method of production or the automated method of production.
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