Manufacturing is considering dropping a
product line. It currently produces a
multipurpose woodworkingclamp in a
simple manufacturing process that uses
special equipment. Variable costs mount to
P6.00 per unit.Fixed overhead costs,
exclusive of depreciation, have been
allocated to this product at a rate of P3.50 a
unitand will continue whether or not
production ceases. Depreciation on the
special equipment amounts to P20,000a
year. If production of the clamp is stopped,
the special equipment can be sold for
P18,000; if productioncontinues, however,
the equipment will be useless for further
production at the end of 1 year and will have
nosalvage value. The clamp has a selling
price of P10 a unit ignoring tax effects, the
minimum number of units thatwould have to
be sold in the current year to break even on a
cash flow basis is
a.
20,000 units
b.
36,000 units
c.
5,000 units
d.
4,500 units The correct answer is:
4,500 units