In: Accounting
Complete the attached worksheet. You will need to show your work for each question
1) CircumSpect Products produces a home sentry system, easily installed by a homeowner, that they can produce and ship at a cost of $214 per unit. The company has fixed costs of $11,000 per month. The company believes it can position the product as an upscale specialty item and retail it for $995, or it can use a broader market strategy and sell it for $495. Calculate the required breakeven level of sales, to include $4,000 per month in profit, at each of these prices. Next, discuss their profit levels at each price, assuming they sell twice as many units as they need to in order to breakeven.
2) Serenity Senior Retirement Home has a capacity of 100 residents. It estimates that it has a variable cost of $450/month per resident (to include room, board, and personalized attention), and fixed costs of $5,700 per month. Assuming they operate at a 92% occupancy rate, what price per resident per month must they charge in order to earn a monthly profit of $8,000?
Particulars | Retailing as Upscale | Broder Market Strategy | |||
Sales Price | 995.00 | 495.00 | |||
Less: VariableCost | 214.00 | 214.00 | |||
Conribution Margin | 781.00 | 281.00 | |||
Fixed Expense | 11000 | 11000 | |||
Conribution Margin | 781 | 281 | |||
Break even Point 1 | 15.00 | 40.00 | |||
(Fixed Exp/CM) | |||||
Fixed Expense+Profit 4000 | 15000 | 15000 | |||
Conribution Margin | 781 | 281 | |||
Break even Point | 20.00 | 54.00 | |||
(Fixed Exp/CM) | |||||
Twice the Units of BEP1 | |||||
Particulars | Retailing as Upscale | Broder Market Strategy | |||
Sales Price | 29,850 | 39,600 | |||
Less: VariableCost | 6,420 | 17,120 | |||
Conribution Margin | 23,430 | 22,480 | |||
Fixed Expense | 11,000 | 11,000 | |||
Net Operating Income | 12,430 | 11,480 | |||
Net Income is higher in case of retailing as Upscale | |||||
2 | Capacity of Residents | 100 | |||
Occupancy Rate | 92% | ||||
Occupancy Residents | 92 | ||||
Calculation of Price Per Resident: | |||||
Costs: | PU | Total | |||
Variable Cost: | 450 | 41400 | (450*92) | ||
Fixed Cost | 5700 | ||||
Total Costs | 47100 | ||||
Add: Monthly Profit to be Earned | 8000 | ||||
Total Desired Revenue | 55100 | ||||
Occupancy Residents | 92 | ||||
Price Per Resident | 598.91 | ||||