Hewtex Electronics manufactures two products – tape recorders and electronic calculatorsÿ
– and sells them nationally to wholesalers and retailers. The…. Hewtex Electronics manufactures two products – tape recorders and electronic calculatorsÿ- and sells them nationally to wholesalers and retailers. The Hewtex management is veryÿpleased with the company’s performance for the current fiscal year. Projected salesÿthrough December 31,20×7, indicate that 70,000 tape recorders and 140,000 electronicÿcalculators will be sold this year. The projected earnings statement follows:ÿHewtex ElectronicsÿProjected Earnings StatementÿFor The Year Ended December 31, 20×7ÿÿTape ElectronicÿÿRecorders CalculatorsÿÿTotal TotalÿÿAmount Per Amount Per Totalÿÿ(000’s) Unit (000’s) Unit (000’s)ÿÿSales $1,050 $15.00 $3,150 $22 50 $4,200.00ÿProduction costs:ÿÿDirect materials 280 4.00 630 4.50 910.00ÿÿDirect labor 140 2.00 420 3.00 560.00ÿÿVariable overhead 140 2.00 280 2.00 420.00ÿÿFixed overhead 70 1.00 210 1.50 280.00ÿ630 9.00 1,540 11.00 2,170.00ÿGross margin $ 420 $ 6.00 $1,610 $11.50 2,030.00ÿÿFixed selling and administrative 1,040.00ÿNet income before income taxes 990.00ÿÿIncome taxes (55 %) 544.50ÿNet income $ 445.50It shows that Hewtex will exceed its earnings goal of 9% on sales after income taxes.ÿThe tape recorder business has been fairly stable the last few years, and the companyÿdoes not intend to change the tape recorder price. Competition among manufacturers ofÿelectronic calculators has been increasing, however. Hewtex’s calculators have been veryÿpopular with consumers. In order to sustain this interest in their calculators and to meetÿthe price reductions expected from competitors, management has decided to reduce theÿwholesale price of its calculator from $22.50 to $20.00 per unit effective January 1, 20×8.ÿAt the same time, the company plans to spend an additional $57,000 on advertisingÿduring fiscal year 20×8. As a consequence of these actions, management estimates thatÿ80% of its total revenue will be derived from calculator sales compared to 75% in 20×7.ÿAs in prior years, the sales mix is assumed to be the same at all volume levels.ÿThe total fixed overhead costs will not change in 20×8, nor will the variable overheadÿcost rates (applied on a direct labor hour base). However, the cost of materials and directÿlabor is expected to change. The cost of solid-state electronic components will be cheaperÿin 20×8. Hewtex estimates that material costs will drop 10% for the tape recorders andÿ20% for the calculators in 20×8. Direct labor costs for both products will increase 10% inÿthe coming year, however.ÿRequired:ÿa. How many tape recorder and electronic calculator units did Hewtex Electronicsÿhave to sell in 20×7 to break even?ÿb. What volume of sales is required if Hewtex Electronics is to earn a profit in 20×8ÿÿequal to 9% on sales after income taxes?ÿc. How many tape recorder and electronic calculator units will Hewtex have to sell inÿÿ20×8 to break even?
Hewtex Electronics manufactures two products – tape recorders and electronic calculatorsÿ
– and sells them nationally to wholesalers and retailers. The…
