Question

Corrigan Enterprises is studying the acquisition of two electrical component insertion systems for producing its sole product, the universal gismo. Data relevant to the systems follow. Model no. 6754: Variable costs, $19.00 per unit Annual fixed costs, $986,200 Model no. 4399: Variable costs, $11.80 per unit Annual fixed costs, $1,114,500 Corrigan’s selling price is $67 per unit for the universal gismo, which is subject to a 15 percent sales commission. (In the following requirements, ignore income taxes.) 2-a. Calculate the net income of the two systems if sales and production are expected to average 47,000 units per year.

Answer 1

Answer:

                                                                 model no.6754       model no.4399

Sales (47000 * $67)                                 $3,149,000               $3,149,000

Variable costs                                          -$893,000                -$554,600

Contribution                                              $2,256,000              $2,594,400

commission                                              -$472,350                 -$472,350

Fixed costs                                               -$986,200                 -$1,114,500

Net Income                                          $797,450                   $1,007,550

Explanation:

Answer 2

Answer:

#6754  797,450

#4399 1,007,550

Explanation:

$\left[\begin{array}{cccc}&#6754&#4399&Differential\\ Sales&2676650&2676650&0\\ Variable Cost&-893000&-554600&338,400\\ Contribution&1783650&2122050&338.400\\ Tracable fixed&-986200&-1114500&-128300\\ Operating Income&797450&1007550&210.100\\\end{array}\right]$

sales: 67 x (1 - 0.15) x 47,000

Variable cost:

19 x 47000

and 11.8 x 47,000

Then we solve for the differential and notice that #4399 yield a better perating income