In: Accounting
Question 2
Hi-tech Company sells 400 computer hard-disks which cost data is as follows:
Per Unit
Selling Price $250
Variable costs $150
Fixed costs are $35,000 per month.
Required
(a) |
What is Hi-tech Company’s expected contribution per unit? |
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(b) |
Calculate the breakeven sales for Hi-tech Company in $ value and in units per month. |
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(c) |
Recently, new competitors have entered the market of digital products. The sales manager proposes that the selling price of hard-disks will be reduced to $235 as to maintain its existing sales volume per month. Discuss how the sales manager’s proposal affects the margin of safety performance. |
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(d) |
The sales manager would like to pay the salesman on commission basis of $15 per disk sold, rather than on fixed salaries of $6,000 per month. The sales manager is confident that the change will increase sales volume by 15%. Should change be made? |
( a ) Contribution Margin = Selling Price - Variable cost per unit
( a ) Contribution Margin = $ 250 - $ 150
( a ) Contribution Margin = $ 100.
( b ) Break-even Point in units = Fixed cost / Unit Contribution margin
( b ) Break-even Point in units = $ 35,000 / $ 100
( b ) Break-even Point in units = 350 Units.
( B ) Break even sales = 350 * $ 250
( B ) Break even sales = $ 87,500
( c ) New Contribution margin = $ 235 - $ 150
( c ) New Contribution margin = $ 85.
>> New Break-even sales = $ 35,000 / $ 85
>> New Break-even sales = 412.
>> there will be a loss if the selling price decreases because sales units is less than break even point units.
( d ) New Contribution margin = $ 250 - $ 150 - $ 15
( d ) New Contribution margin = $ 85
>> New Fixed cost = $ 35,000 + $ 6000 = $ 41,000
>> New Break-even Point in units = $ 41,000 / $ 85
>> New Break-even Point in units = 482
>> New Sales units = 400 * 115 %
>> New Sales units = $ 460
>> Sales is less than Break-even sales, so there will be a loss.