Elmton Recently Sold 70,000 Units, Generating Sales Revenue of $4,900,000

question 59

Essay

Elmton recently sold 70,000 units, generating sales revenue of $4,900,000. The company's variable cost per unit and total fixed cost amounted to $20 and $2,800,000, respectively. Management is in the process of studying the dollar impact of various transactions and events, and desires answers to the following independent cases:
Case no. 1: Management wants to lower the firm's break-even point to 52,000 units. If all other costs remain constant, what must happen to fixed costs to achieve this objective?
Case no. 2: The company anticipates a $2 hike in the variable cost per unit. If all other costs remain constant and management desires to maintain the firm's current break-even point, what must happen to Elmton's selling price? If selling price remains constant, what must happen to the firm's total fixed costs?
Required:
A. Answer the two cases raised by management.
B. Determine the impact (increase, decrease, or no effect) of the following operating changes on the items cited:
1. An increase in variable selling costs on income.
2. A decrease in direct material cost on the unit contribution margin.
3. A decrease in the number of units sold on the break-even point.

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Definitions:

Clustering

Clustering is the grouping or gathering of objects, data points, or individuals based on similarities or common characteristics.

Regional Information

Data or details that pertain to a specific geographical area or region.

Non-Price Competition

A marketing strategy where a company tries to differentiate its product or service from competing products on the basis of attributes other than price.

Government Research

Studies and investigations carried out or funded by the government aimed at gaining new scientific or technical knowledge and understanding.