ACC 561
4. Individual Assignment: Practice Text Exercises
• Complete the following problem sets from the Introduction to Management Accounting text:
Question 2-61, CVP in a Modern Manufacturing Company, on p. 87
A division of Hewlett-Packard Company changed its production operations
from one where a large labor force assembled electronic components to
an automated production facility dominated by computer-controlled
robots. The change was necessary because of fierce competitive
pressures. Improvements in quality, reliability, and flexibility of
production schedules were necessary just to match competition. As a
result of the change, variable costs fell and fixed costs increased, as
shown in the following assumed budgets:4. Individual Assignment: Practice Text Exercises
• Complete the following problem sets from the Introduction to Management Accounting text:
Question 2-61, CVP in a Modern Manufacturing Company, on p. 87
Old Production Operation Old Production Operation
Unit variable cost
Material $0.88 $0.88
Labor $1.22 0.22
Total per unit $2.10 $1.10
Monthly fixed costs
Rent and depreciation 450,000.00 $875,000.00
Supervisory labor 80,000.00 175,000.00
Other 50,000.00 90,000.00
Total per month $580,000.00 $1,140,000.00
Expected volume is 600,000 units per month, with each unit selling for $3.10 Capacity is 800,000 units.
1. Compute the budgeted profit as the expected volume of 600,000 units under both the old and the new production environments.
2. Compute the budgeted break-even point under both the old and the new production environments.
3 .Discuss the effect on profits if volume falls to 500,000 units under both the old and the new production environments.
4 .Discuss the effect on profits if volume increases to 700,000 units under both the old and the new production environments.
5 .Comment on the riskiness of the new operation versus the old operation.
Click here for the solution: ACC 561 Question 2-61, CVP in a Modern Manufacturing Company
