Q#2 – 20%

Parker Pottery currently produces a line of vases and a line of ceramic figurines. Each line uses
the same equipment and labor; hence, there are no traceable fixed costs. Common fixed cost
equals $30,000. The income tax rate is 25%.

The management is concerned because the company has yet to make a profit. Sales were slow in
the first quarter but really picked up by the end of the year. Over the course of the year, 1,500
units were sold. The management is interested in determining how many units Vases and
Figurines must be sold to break even. The management has begun to assess the profitability of
the two lines and has gathered the following data for last year:

Vases Figurines
Selling price per unit $40 $70
Variable cost per unit 30 42
Number of units sold 1,000 units 500 units

Required:
1. Calculate the units and dollar amounts for vases and figurines that must be sold for the
company to break even. (8 points)
2. Calculate the targeted unit sold for Vases and Figurines if Parker Pottery proposed a
target net income for $20,700. (6 points)
3. Parker Pottery is considering upgrading its factory to improve the quality of its products.
The upgrade will add $5,260 per year to total fixed cost. If the upgrade is successful, the
projected sales of vases will be 1,500, and figurine sales will increase to 1,000 units. For
this new strategy, what is the new break-even point in units and dollar amouts for each of
the products? (6 points)