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

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.