Question

Susan Lo picked up the phone and called her boss, Phil Takata, the vice president of marketing at Jewel Clasps Corporation: “Phil, I’m not sure how to go about answering the questions that came up at the meeting with the president yesterday.”

"What's the problem?"

“The president wanted to know the break-even point for each of the company’s products, but I am having trouble figuring them out.”

“I’m sure you can handle it, Susan. And, by the way, I need your analysis on my desk tomorrow morning at 8:00 sharp in time for the follow-up meeting at 9:00.”

Jewel Clasps Corporation makes three different types of jewelry clasps in its manufacturing facility in North Carolina. Data concerning these products appear below:

	Gold		Silver		Copper
Annual sales volume	116,000		208,000		288,000
Unit selling price	$	1.40	$	1.90	$	1.30
Variable expense per unit	$	0.70	$	1.20	$	1.00

Total fixed expenses are $266,000 per year.

All three products are sold in highly competitive markets, so the company is unable to raise prices without losing an unacceptable numbers of customers.

The company has an extremely effective lean production system, so there are no beginning or ending work in process or finished goods inventories.

**TIP: To answer the questions below, it will be most helpful if you prepare segmented income statements as illustrated in your textbook

Required:

1. What is the company’s over-all break-even point in dollar sales?(What is the company’s over-all break-even point in dollar sales? Round CM ratio to 4 decimal places and final answer to the nearest thousand dollars.)

2. Of the total fixed expenses of $266,000, $15,820 could be avoided if the Gold product is dropped, $119,700 if the Silver product is dropped, and $59,400 if the Copper product is dropped. The remaining fixed expenses of $71,080 consist of common fixed expenses such as administrative salaries and rent on the factory building that could be avoided only by going out of business entirely.

a. What is the break-even point in unit sales for each product? What is the break-even point in unit sales for each product? (Do not round intermediate calculations.)

b. If the company sells exactly the break-even quantity of each product, what will be the overall profit of the company?

1) What is the company’s over-all break-even point in dollar sales? (Round CM ratio to 4 decimal places and final answer to the nearest thousand dollars.)What is the break-even point in dollar sales? (HINT: the anwser is NOT $789,640)

2A) What is the company’s over-all break-even point in d; ollar sales? (Round CM ratio to 4 decimal places and final answer to the nearest thousand dollars.) Correct anwser is- GOLD: 22,600 SILVER: 171,000 COPPER: 198,000.

2B) If the company sells exactly the break-even quantity of each product, what will be the overall profit of the company? (HINT: anwser is NOT $194,450)

Please label anwsers with step-by-step solution, because I still can't understand.

Answer 1

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Part 1 Golden Silver Copper Total Selling Price $ 162,400.00 $ 395,200.00 $ 374,400.00 $ 932,000.00 Less: Variable Cost $   81,200.00 $ 249,600.00 $ 288,000.00 $ 618,800.00 Contribution Margin $   81,200.00 $ 145,600.00 $   86,400.00 $ 313,200.00 Contribution Margin Ratio 50.0000% 36.8421% 23.0769% 33.6052% Total Fixed Cost $       266,000 BEP Dollar Sale $       791,544 (266000/33.6052%)
Part 2a
			Golden	Silver	Copper
	Selling Price	A	$              1.40	$              1.90	$              1.30
	Less: Variable Cost	B	$              0.70	$              1.20	$              1.00
	Contribution Margin	C	$              0.70	$              0.70	$              0.30
	Fixed Cost identified to product	D	$         15,820	$       119,700	$         59,400
	BEP Units	E=D/C	22,600	171,000	198,000
Part 2B
	Segmented Income Statement
			Golden	Silver	Copper	Total
	Sale Value	E*A	$         31,640	$       324,900	$       257,400	$       613,940
	Less: Variable Cost	E*B	$         15,820	$       205,200	$       198,000	$       419,020
	Contribution Margin	C	$         15,820	$       119,700	$         59,400	$       194,920
	Less: Identified Fixed Cost	D	$         15,820	$       119,700	$         59,400	$       194,920
	Each Product profit		$                   -	$                   -	$                   -	$                   -
	Unallocated Fixed Cost					$         71,080
	Net Profit/(Loss) of Company					$        -71,080