Question

Gere Club Makers International manufactures golf clubs for amateur golfers and sells them in
complete sets. Each set of clubs sells for $250. The costs for the company for a typical year are
attached.
The company expects to sell 120,000 sets of clubs per year. The company has an average income
tax rate of 25%.
REQUIRED: (1) How many sets of golf clubs must the company sell in order to break even?
Round your answer up to the next whole unit.
(2) How much sales in dollars must the company have in order to earn a before
tax profit of $150,000? Round your answer to nearest whole dollar.
(3) Suppose that the company desires to earn an after tax profit of $225,000.
How many sets of golf clubs must the company sell in order to achieve this
goal? Round your answer up to the next whole unit.
(4) Suppose that the company can eliminate the fixed manufacturing overhead
costs completely by increasing the variable manufacturing overhead cost to
$25 per unit. How many sets of golf clubs must the company now sell in
order to break even? Round your answer up to the next whole unit.
(5) Using the original cost information in the problem, assume that the company
intends to sell 150,000 sets of golf clubs for the current year. What price per
unit would it have to charge in order to earn a before tax profit of $300,000?
Round your answer to the nearest whole cent.

GERE CLUB MAKERS INTERNATIONAL
COSTS FOR THE COMPANY FOR A NORMAL YEAR
Direct Materials Cost Per Unit $ 100.00
Direct Labor Cost Per Unit 30.00
Variable Manufacturing Overhead Cost Per Unit 20.00
Fixed Manufacturing Overhead Cost Per Year 70,000
Variable Marketing and Admin. Cost Per Unit 10.00
Fixed Marketing and Admin. Cost Per Year 250,000

Answer 1

Req 1:
Break even point: Fixed cost / CM per unit
	320000 /90 = 3556 units
Req 2:
Desired profits: 150000
Desired contribution: 150000+320000 = 470000
Target sales units: Desired cocntribution / CM per unit
		470000/90 = 5223 units
Req 3:
Desired profit after tax: 225000
Desired profit before tax: 225000/75% = 300,000
Desired contribution: 300,000+320000 =620000
Target sales units: Desired contribution/ CM per unit
		620000/ 90 = 6889 units
Req 4:
Revised fixed cost: 250000
Revised Variable cost per unit: 160+25 =185
CM per unit: 250-185 = 65
Break even units: Fixed cost / CM per unit
		250000 /65 = 3846 units
Req 5:
Total cost of 150000 units
Mmaterial			15,000,000
Labour			4500000
Variable manufacturing OH			4500000
fixed manufacturing OH			70000
Selling oh			1500000
Fixed selling oh			250000
Total cost of 150000 units			25,820,000
Add: Desired profits			300,000
Target sales			26,120,000
Divide: Number of units			150,000
Selling price per unit			174.13