Question

In: Operations Management

A manufacturing company is selling two products, rods and reels, each at $65 per unit. Rods...

A manufacturing company is selling two products, rods and reels, each at $65 per unit. Rods have a variable cost of $30. Reels have a variable cost of $25. Fixed cost for the company is $22,000.

a. If the sales mix is 1:1, (1 rod to 1 reel) what is the breakeven in units of rods and reels?

b. If the sales mix is 1:1, (1 rod to 1 reel) what is the break-even point in dollars of sales?

c. If the sales mix changes to 1:4, (1 rod to 4 reels) what is the break-even point in units of rods and reels?

d. If the sales mix changes to 1:4, (1 rod to 4 reels) what is the break-even point in dollars of sales?

Solutions

Expert Solution

Let the no. of rods be x and no. of reels be y.

As seen from data, x = y.

We will first find the breakeven equation and then substitute value of x.

Selling price of each item = $65

Fixed cost = FC = $22000

Variable cost for rod = VCd = $30

Variable cost for reel = $25

At breakeven, profit = 0

Profit = Total Revenue - (Fixed costs + Variable costs)

0 = Selling price of each item * (No. of rods + No. of reels) - (22,000 + Variable cost for rod * No. of rods + Variable cost for reel * No. of reels)

0 = 65 * (x + y) - (22000 + 30 * x + 25 * y)

35x + 40y = 22000................................................................Equation 1

x = y

75x = 22000

x = y = 293.33

Brekeven in terms of dollars = Total Revenue = 65 * (293.33 + 293.33) = $38,133.33

Hence,

a. If the sales mix is 1:1, (1 rod to 1 reel), the breakeven in units of rods and reels is 293.33 units of each

b. If the sales mix is 1:1, (1 rod to 1 reel), the break-even point in dollars of sales $38,133.33

For part c & D,

Sales mix = 1 : 4

4x = y

As per equation 1 above,

35x + 40y = 22000

35x + 40(4x) = 22000

x = 112.82

y = 4x = 451.28

Brekeven in terms of dollars = Total Revenue = 65 * (112.82 + 451.28) = $36,666.5‬

c. If the sales mix changes to 1:4, (1 rod to 4 reels), the break-even point in 112.82 units of rods and 451.28 units of reels.

d. If the sales mix changes to 1:4, (1 rod to 4 reels), the break-even point in dollars of sales = $36,666.5‬

----------------------------------------------------------------------------------------------------------------------------------------------------

In case of any doubt, please ask through the comment section before Upvote/downvote.

keosha answered 1 month ago
Next > < Previous

Related Solutions

Merline Manufacturing makes its product for $65 per unit and sells it for $131 per unit....
Merline Manufacturing makes its product for $65 per unit and sells it for $131 per unit. The sales staff receives a 10% commission on the sale of each unit. Its December income statement follows. MERLINE MANUFACTURING Income Statement For Month Ended December 31, 2017 Sales $ 1,310,000 Cost of goods sold 650,000 Gross profit 660,000 Operating expenses Sales commissions (10%) 131,000 Advertising 202,000 Store rent 24,100 Administrative salaries 40,500 Depreciation—Office equipment 50,500 Other expenses 12,100 Total expenses 460,200 Net income...
Pat’s Problem A manufacturing company makes two products. The profit estimates are $1000 for each unit...
Pat’s Problem A manufacturing company makes two products. The profit estimates are $1000 for each unit of product 1 sold and $1200 for each unit of product 2 sold. The labor-hour requirements for the products in each of the three production departments are summarized below:    Department A Department B    Department C Product 1 8 hrs 3 hrs 10 hrs Product 2    12 hrs    3 hrs 5 hrs The production supervisors in the departments have estimated that...
Thompson Company is considering the development of two products: no. 65 or no. 66. Manufacturing cost...
Thompson Company is considering the development of two products: no. 65 or no. 66. Manufacturing cost information follows. No. 65 No. 66 Annual fixed costs $222,000 $340,000 Variable cost per unit 30 25 Regardless of which product is introduced, the anticipated selling price will be $50 and the company will pay a 10% sales commission on gross dollar sales. Thompson will not carry an inventory of these items. 1) Difference between breakeven volume (stated as revenue deollars) for the two...
For a table manufacturing company, selling price for a table is $203.00 per Unit, Variable cost...
For a table manufacturing company, selling price for a table is $203.00 per Unit, Variable cost is $23.00 per Unit, rent is $4,884.00 per month and insurance is $300.00 per month. Company wants to expand its business and improve the table quality, it wants to increase the selling price for a table to $305.00 per Unit, Variable cost to $59.00 per Unit, bigger area will have rent $6,985.00 per month and insurance is $421.00 per month At what point will...
For a table manufacturing company, selling price for a table is $161.00 per Unit, Variable cost...
For a table manufacturing company, selling price for a table is $161.00 per Unit, Variable cost is $25.00 per Unit, rent is $3,531.00 per month and insurance is $285.00 per month. Company wants to expand its business and improve the table quality, it wants to increase the selling price for a table to $290.00 per Unit, Variable cost to $57.00 per Unit, bigger area will have rent $5,704.00 per month and insurance is $389.00 per month At what point will...
Two different products that have the following price and cost characteristics. Selling price per unit: Bicycle:...
Two different products that have the following price and cost characteristics. Selling price per unit: Bicycle: 100 Tricycle: 400 Variable cost per unit: Bicycle: 40 Tricycle: 240 Management believes that pushing sales of the Bicycle product would maximize company profits because of the high contribution margin per unit for this product. However, only 50,000 labor hours are available each year, and the Bicycle product requires 4 labor hours per unit while the Tricycle model requires 2 labor hours per unit....
Sales per period 1,000 units Selling price $40 per unit Variable manufacturing cost $12 per unit...
Sales per period 1,000 units Selling price $40 per unit Variable manufacturing cost $12 per unit Selling expenses $5,100 plus 5% of selling price Administrative expenses $3,000 plus 20% of selling price note Note that some costs have variable components such as commissions on sales and shipping costs. The contribution margin ratio would be: A) 70%. B) 45%. C) 75%. D) 55%.
A Company is selling two products A and B. It sells the two products at the...
A Company is selling two products A and B. It sells the two products at the prices of AED 190 and 230 respectively. The finance department estimated the fixed cost for both products A and B as AED 2400 and 2550 and the variable cost to make a unit of each product is AED 70 and 60 respectively. Compute the number of units the company must sell to Break-Even from each product? Compute the total revenue at these Break-Even Points?...
Grange Manufacturing Company had net income of $300,000 in 2017 when the selling price per unit...
Grange Manufacturing Company had net income of $300,000 in 2017 when the selling price per unit was $200 and data for variable and fixed costs were as follows: Cost Schedule: Variable Costs: Direct Material $28 Direct Labour $35 Variable Manufacturing Overhead $17 $80 Fixed Costs: Manufacturing Overhead $225,000 Advertising 45,000 Administrative 150,000 $420,000 Required: i)             Compute the number of units sold in 2017, using the equation method. ii)           Using the sales units calculated in (i), prepare a contribution margin income statement for...
Grange Manufacturing Company had net income of $300,000 in 2017 when the selling price per unit...
Grange Manufacturing Company had net income of $300,000 in 2017 when the selling price per unit was $200 and data for variable and fixed costs were as follows: Cost Schedule: Variable Costs: Direct Material $28 Direct Labour $35 Variable Manufacturing Overhead $17 $80 Fixed Costs: Manufacturing Overhead $225,000 Advertising 45,000 Administrative 150,000 $420,000 i)             Compute the number of units sold in 2017, using the equation method. iv)          Calculate the margin of safety in number of units and sales dollars. v)           Using the sales...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT