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    Cost volume profit questions for XXXX Company

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    A division of XXXX 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 the competition. As a result of the change, variable costs fell and fixed costs increased, as
    shown in the following assumed budgets:
    Old Production Operation New Production Operation
    Unit variable cost
    Material $ .88 $ .88
    Labor 1.22 .22
    Total per unit $ 2.10 $ 1.10
    Monthly fixed costs
    Rent and depreciation $450,000 $ 875,000
    Supervisory labor 80,000 175,000
    Other 50,000 90,000
    Total per month $580,000 $1,140,000
    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 at 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.

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    Solution Summary

    Computations and discussion in excel to guide student through how this is done.

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