Morrel Co Produces and Sells a Single Product There Are No Beginning or Ending Inventories

question 128

Essay

Morrel Co. produces and sells a single product. The company's income statement for the most recent month is given below:
$\begin{array}{lr}\text { Sales ( 6,000 units at \( \$ 40 \) per unit)}&&\$240,000\\\text { Less manufacturing costs:}\\\text { Direct materials } & \$ 48,000 \\\text { Direct labor (variable) } & 60,000 \\\text { Variable factory overhead } & 12,000 \\\text { Fixed factory overhead } & 30,000&150,000\\\text { Gross margin}&&\$90,000\\\text { Less selling and other costs:}\\\text { Variable selling and other costs}&24,000\\\text { Fixed selling and other costs}&42,000&66,000\\\text { Operating profit}&&\$24,000\end{array}$
There are no beginning or ending inventories.
Required:
a. Compute the company's monthly break-even point in units of product.
b. What would the company's monthly operating profit be if sales increased by 25% and there is no change in total fixed costs?
c. What dollar sales must the company achieve in order to earn an operating profit of $50,000 per month?
d. The company has decided to automate a portion of its operations. The change will reduce direct labor costs per unit by 40 percent, but it will double the costs for fixed factory overhead. Compute the new break-even point in units.

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Definitions:

Life Expectancy

The average number of years a person is expected to live based on demographic factors such as current age and gender, typically derived from statistical analysis.

Literacy Rate

The percentage of people within a population who are able to read and write at a specified age.

Economic Growth

An increase in the production of goods and services in an economy over a period of time, measured by changes in the gross domestic product (GDP).

Real Per Capita Output

The amount of goods and services produced per person, adjusted for inflation, indicating the economic well-being of a country's citizens.