Question

Neptune Company produces toys and other items for use in beach and resort areas. A small, inflatable toy has come onto the market that the company is anxious to produce and sell. The new toy will sell for $3.10 per unit. Enough capacity exists in the company’s plant to produce 30,300 units of the toy each month. Variable expenses to manufacture and sell one unit would be $1.96, and fixed expenses associated with the toy would total $51,313 per month. The company's Marketing Department predicts that demand for the new toy will exceed the 30,300 units that the company is able to produce. Additional manufacturing space can be rented from another company at a fixed expense of $2,566 per month. Variable expenses in the rented facility would total $2.17 per unit, due to somewhat less efficient operations than in the main plant. Required: 1. What is the monthly break-even point for the new toy in unit sales and dollar sales. (Round "per unit" to 2 decimal places, intermediate and final answers to the nearest whole number.) 2. How many units must be sold each month to attain a target profit of $11,625 per month? (Round "per unit" to 2 decimal places, intermediate and final answer to the nearest whole number.) 3. If the sales manager receives a bonus of 25 cents for each unit sold in excess of the break-even point, how many units must be sold each month to attain a target profit that equals a 22% return on the monthly investment in fixed expenses? (Round "per unit" to 2 decimal places, intermediate and final answer to the nearest whole number.)

Answer 1

	1	CALCULATION OF BREAKEVEN SALES
		Using current facilities:
	A	Selling price per unit	$3.10
	B	Variable expenses per unit	$1.96
	C=A-B	Contribution per unit	$1.14
	D=C/A	Unit Contribution margin	0.37
	E	Fixed expenses	$51,313
	F	Capacities of current facilities	30,300
	G=C*F	Contribution for full capacity	$    34,542.00
	H=F-G	Net Loss at full current capacity	$    16,771.00
		Using additional capacity:
	I	Selling price per unit	$3.10
	J	Variable expenses per unit	$2.17
	K=I-J	Contribution per unit	$0.93
	L	Additional Fixed expenses	$2,566
	M=H+L	Total cost to be recovered through contribution from additional sales for breakeven	$          19,337
	N=M/K	Additional sales in units required for breakeven	20792.47312
	P	Additional sales in full units required	20,793
	Q=F+P	Break even point in monthly unit sales	51,093
	R=Q*I	Break even point in monthly dollar sales	$ 158,388.30
2		CALCULATION OF SALES FOR TARGET PROFIT
	A	Breakeven monthly sales in units	51,093
	B	Contribution per unit beyond the breakeven sales	$0.93
	C	Target monthly profit	$11,625
	D=C/B	Unit sales required beyond breakeven point	12500
	E=A+D	Total monthly sales in unit required for target profit	63,593
3		CALCULATION OF TRAGET PROFIT REQUIRED FOR 22% RETURN
	A	Total fixed expenses per month beyond breakeven point	$53,879	(51313+2566)
	B=0.22*A	Target monthly profit (22% of fixed expenses)	$11,853.38
	C	Sales price per unit	$3.10
	D	Variable expenses per unit	$2.17
	E	Sales managers bonus per unit	$               0.25
	F=C-D-E	Contribution per unit	$0.68
	G	Breakeven point in units	51,093
	H=B/F	Unit sales required beyond breakeven point	17431.44118
	I	Sales required in whole units beyond breakeven point	17432
	J=G+I	Total monthly sales in unit required for target profit	68,525