Rome Company manufactures three products, A, B, and C. Thecompany’s controller has just received the upcoming year’s salesforecast for the firm’s three products. Rome has experiencedconsiderable variations in sales volumes and variable costs overthe past two years, and the controller believes that the forecastshould be carefully evaluated from a cost-volume-profit viewpoint.The preliminary budget information for next year follows. A B CUnit sales 40,000 40,000 80,000 Unit selling price $80 $110 $135Variable product cost per unit $53 $69 $77 Variable selling costper unit $5 $4 $6 The fixed MOH is budgeted at $3,200,000, and thecompany’s fixed SG&A expenses are forecast to be $1,600,000.Rome has a tax rate of 40 percent.
b. Assuming that the sales mix remains as budgeted, determinehow many units of each product Rome must sell to break even. (10points)
c. After preparing the original estimates, management determinedthat the variable product cost of product C will increase by 20percent and the variable selling cost of product B will increase by40 percent. However, management has decided not to change theselling price of either product. In addition, management recentlylearned that the firm’s product C has been rated as the best valueon the market, and the company now expects to sell three times asmany units of product C as each of the other products. Under thesecircumstances, determine how many units of each product Rome mustsell to break even. (10 points)
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