In: Accounting
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
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1- |
Monthly break even point for new toy upto 30900 units |
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contribution margin |
3.2-2.02 |
1.18 |
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Fixed cost |
54193 |
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at 30900 units current contribution covers = 30900*1.18 |
36462 |
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uncovered fixed cost |
54193-36462 |
17731 |
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additional fixed cost |
2710 |
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contribution at new factory |
selling price-variable cost |
3.2-2.24 |
0.96 |
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break even point for new factory =fixed cost/contribution margin per unit |
(17731+2710)/.96 |
21293 |
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Monthly break even point |
30900+21293 |
52193 |
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Monthly break even point in sales |
52193*3.2 |
167018 |
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2- |
Break even point to earn a profit of 11904 |
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break even point for new factory =(fixed cost+ profit)/contribution margin per unit |
(17731+2710+11904)/.96 |
33693 |
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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 |
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new contribution |
3.2-2.44 |
0.76 |
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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 |
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units to be sold to earn a profit of 15364 |
30900+47112 |
78012 |
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sales in dollars |
78012*3.2 |
249638 |