Question

Selmore Collectible Toy Company (SCTC) makes toy sets consisting of collectible trucks, vans, and cars for the retail market. The firm is developing a new toy set that includes a battery-powered tractor trailer, complete with cab and trailer; a sports car; and a motorcycle. Each set sells for $100. Table 1 shows the major components of SCTC’s annual fixed costs for the toy set. Each component includes the cost of purchases, fixed costs and operation expenses. Table 2 shows the components of SCTC’s variable costs.

Category	Amount
Land	$42,500
Buildings	$332,500
Manufacturing machinery	$532,000
Office equipment	$212,800
Utilities	$30,500
Insurance	$99,700
Total	$1,250,000

Category	Amount
Labor	$15.00
Advertising	$1.00
Shipping and receiving	$5.00
Total	$21.00

Prepare a spreadsheet to support the decision-making needs of SCTC’s managers. The spreadsheet should show the fixed costs, variable costs per unit, the contribution margin, and the break-even point for this product.

How many sets does SCTC have to sell before it can start turning a profit?

Include a data table to show alternative break-even points, assuming variations in insurance costs and labor costs. Perform your analysis for insurance between $90,000 and $110,000 in increments of $5,000 and labor costs between $12 and $17.00 in increments of $1.00. This data table should be in the form of a matrix with the columns reflecting the labor costs and the rows reflecting the insurance costs.

How would increasing the sale price to $125 affect the break-even point?   

Answer 1

Sales price per set	100	125
Variable cost per set	21	21
Contribution	79	104
Contribution Margin	79%	83%
Fixed Costs	$     1,250,000	$     1,250,000
Breakeven Point= Fixed costs/ Contribution per unit	15,823	12,019
SCTC needs to sell 15,823 Sets before it can start turning a profit
Break even Point
	Labour Costs
Insurance Cost	12	13	14	15	16	17
90,000	15,126	15,312	15,504	15,700	15,901	16,108
95,000	15,187	15,374	15,566	15,763	15,965	16,173
100,000	15,248	15,436	15,629	15,827	16,029	16,238
105,000	15,309	15,498	15,691	15,890	16,094	16,303
110,000	15,370	15,559	15,754	15,953	16,158	16,368

if the sales price is incresed to $ 125, the number if units to breakeven will reduce by 3804.