HW #5 – Chapter 3Directions: Please submit your work in Word or PDF formats only. You can submit an Excelfile to suppo...

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The Nicholas Corporation sells only one product.

April 14, 2018

HW #5 – Chapter 3
Directions: Please submit your work in Word or PDF formats only. You can submit an Excel
file to support calculations, but please “cut and paste” your solutions into the Word or PDF
file. Be sure to show how you did your calculations.
Question #1
The Nicholas Corporation sells only one product. The following is budgeted information for that
product:
Annual production and sales capacity (units)
Budgeted selling price
Variable cost of goods sold
Fixed manufacturing costs
Variable selling and administrative costs
Fixed selling and administrative costs

200,000
$100 per unit
$46 per unit
$602,000
$14 per unit
$802,000

Nicholas’s corporate tax rate is 37.5%.
a) How many units does Nicholas need to sell to breakeven?
b) How much revenue does Nicholas need to generate to breakeven?
c) How many units does Nicholas need to sell to earn an operating profit (before taxes) of
$546,000?
d) How much revenue does Nicholas need to generate to earn net income (after taxes) of
$273,800?
e) Assume Nicholas is currently producing and selling 100,000 units. By what percentage
will operating income change if sales increase by 15% from 100,000 units? Be sure to
provide figures to justify your answer.
f) Assume Nicholas is currently producing and selling 100,000 units. By what percentage
will operating income change if sales decrease by 12% from 100,000 units? Be sure to
provide figures to justify your answer.

Question #2
A production company is planning to sell tickets to a show for $175 each. It budgets variable
costs to be $25 per attendee. Total fixed costs are estimated to be $180,000. The theatre can
accommodate up to 1,000 people because of safety concerns. What should the production
company do? Why? Be specific in your response.
Question #3
The following is budgeted information for the Betty Corporation:
Annual production & sales
Projected selling price
Direct Production Cost Information
Materials (per unit)
Direct Labor (per unit)

Product 1
80,000
$45

Product 2
20,000
$100

$8
$13

$14
$22

Additional information:
Selling & administrative costs (a mixed cost) are budgeted to be $865,000 at the
production and sales listed above. The variable component is $4 per unit (same for each
product).
Manufacturing overhead costs (a mixed cost) are budgeted to be $1,301,000 at the
production and sales listed above. The fixed component is $701,000. Each product uses
the same amount of variable manufacturing overhead per unit.
Assuming the budgeted sales mix remains intact, how many units of each product does Betty
need to sell in order to break even?










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