Neptune Company produces toys and other items for use in beach and resort areas. A small,...

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 $3.20 per unit. Enough capacity exists in the company’s plant to produce 30,900 units of the toy each month. Variable expenses to manufacture and sell one unit would be $2.02, and fixed expenses associated with the toy would total $54,193 per month.

The company's Marketing Department predicts that demand for the new toy will exceed the 30,900 units that the company is able to produce. Additional manufacturing space can be rented from another company at a fixed expense of $2,710 per month. Variable expenses in the rented facility would total $2.24 per unit, due to somewhat less efficient operations than in the main plant.

1.Compute the monthly break-even point for the new toy in unit sales and in dollar sales.

Break-even point in unit sales units

break even point in dollar sales

How many units must be sold each month to make a monthly profit of $11,904?

total units to be sold units

3.	If the sales manager receives a bonus of 20 cents for each unit sold in excess of the break-even point, how many units must be sold each month to earn a return of 27% on the monthly investment in fixed expenses? Total units to be sold units

Solutions

Expert Solution

1-	Monthly break even point for new toy upto 30900 units
	contribution margin		3.2-2.02	1.18
	Fixed cost			54193
	at 30900 units current contribution covers = 30900*1.18			36462
	uncovered fixed cost	54193-36462		17731
	additional fixed cost			2710
	contribution at new factory	selling price-variable cost	3.2-2.24	0.96
	break even point for new factory =fixed cost/contribution margin per unit	(17731+2710)/.96		21293
	Monthly break even point	30900+21293		52193
	Monthly break even point in sales	52193*3.2		167018

2-	Break even point to earn a profit of 11904
	break even point for new factory =(fixed cost+ profit)/contribution margin per unit	(17731+2710+11904)/.96		33693

3-	return required	fixed cost *27%	(54193+2710)*27%	15364
	new variable cost in new factory	current variable cost+bonus to sales manager	2.24+.20	2.44
	new contribution	3.2-2.44		0.76
	units to be sold to earn a profit of 17731 over 30900 units = (additional fixed cost+ desired profit)/contribution per unit	(17731+2710+15364)/.76		47112
	units to be sold to earn a profit of 15364	30900+47112		78012
	sales in dollars	78012*3.2		249638

ekkarill92 answered 1 year ago

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