Baby Dolls Teddy Bears Toy Cars Volume 200,000 125,000 225,000 Sales Price $3.50 $2.75 $3.15 Variable...

	Baby Dolls	Teddy Bears	Toy Cars
Volume	200,000	125,000	225,000
Sales Price	$3.50	$2.75	$3.15
Variable Costs	$2.05	$1.75	$2.45
Fixed Costs	$65,000	$125,000	$35,000

Target pretax income= $0

Investment= $2 million

Capacity=1 million units

1.Return to the original assumptions. Now assume that, due to competition, Toddler Toys must cut prices on each of its three products by 20%. In addition, a new advertising campaign costing $45,000 must be instituted to counteract bad publicity. Given these assumptions, what is the new breakeven point?

Expert Solution

Baby Dolls	Baby Dolls	Teddy Bears	Toy Cars	Total
Volume	2,00,000	1,25,000	2,25,000	5,50,000
Sales mix	36.36%	22.73%	40.91%	100.00%
Sales Price	3.5	2.75	3.15	9.4
Variable Costs	2.05	1.75	2.45	6.25
Fixed Costs	65,000	1,25,000	35,000	2,25,000

	Baby Dolls	Teddy Bears	Toy Cars	Composite
Sales Price	$ 2.80	$ 2.20	$ 2.52	$ 2.55
Less: Variable	$ 2.05	$ 1.75	$ 2.45	$ 2.15
Contribution Margin	$ 0.75	$ 0.45	$ 0.07	$ 0.40

BreakEven point = FC + Advertisement/(SP - VC)
BreakEven point = 225000+45000/.40	6,68,918.92	Toys
	Baby Dolls	Teddy Bears	Toy Cars	Total
Break even point	2,43,243.24	1,52,027.03	2,73,648.65	6,68,918.92

ekkarill92 answered 4 months ago

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