Cambridge Manufacturing Is Evaluating the Introduction of a New Product

question 113

Essay

Cambridge Manufacturing is evaluating the introduction of a new product that would have a unit selling price of $100. The total annual fixed costs are estimated to be $200,000 and the unit variable costs are projected at $60. Forecast sales volume for the first year is 8,000 units.
a) What sales volume (in units) is required to break even?
b) What volume is required to generate a net income of $100,000?
c) What would be the net income at the forecast sales volume?
d) At the forecast sales volume, what will be the change in the net income if fixed costs are: (i) 5% higher than expected? (ii) 10% lower than expected?
e) At the forecast sales volume, what will be the change in the net income if unit variable costs are: (i) 10% higher than expected? (ii) 5% lower than expected?
f) At the forecast sales volume, what will be the change in the net income if the unit selling price is: (i) 5% higher? (ii) 10% lower?
g) At the forecast sales volume, what will be the change in the net income if unit variable costs are 10% higher than expected and fixed costs are simultaneously 10% lower than expected?

Understand the process and importance of obtaining an Employer Identification Number (EIN) for new businesses.

Differentiate between the employer's and employees' portions of payroll taxes.

Apply knowledge of payroll accounting to prepare general journal entries for payroll transactions.

Recognize the regulations and conditions under which certain payroll taxes must be deposited.

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Definitions:

Managed Electronically

The process of organizing, controlling, or conducting operations using digital technology and electronic devices.

Environmental Scan

An analysis method that examines the internal and external environments of an organization to identify opportunities and threats.

External Environment

The external factors, including economic, legal, political, social, technological, and competitive elements, that influence an organization's operations.

Environmental Factor

An external element that can influence the performance and outcomes of an organization, including economic, social, technological, political, and natural conditions.