Question

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 $2.80 per unit. Enough capacity exists in the company’s plant to produce 30,300 units of the toy each month. Variable expenses to manufacture and sell one unit would be $1.78, and fixed expenses associated with the toy would total $45,859 per month. The company's Marketing Department predicts that demand for the new toy will exceed the 30,300 units that the company is able to produce. Additional manufacturing space can be rented from another company at a fixed expense of $2,293 per month. Variable expenses in the rented facility would total $1.96 per unit, due to somewhat less efficient operations than in the main plant.

Required:

1. What is the monthly break-even point for the new toy in unit sales and dollar sales. (Round "per unit" to 2 decimal places, intermediate and final answers to the nearest whole number.)

2. How many units must be sold each month to attain a target profit of $10,836 per month? (Round "per unit" to 2 decimal places, intermediate and final answer to the nearest whole number.)

3. If the sales manager receives a bonus of 25 cents for each unit sold in excess of the break-even point, how many units must be sold each month to attain a target profit that equals a 28% return on the monthly investment in fixed expenses? (Round "per unit" to 2 decimal places, intermediate and final answer to the nearest whole number.)

Required:

1. What is the monthly break-even point for the new toy in unit sales and dollar sales. (Round "per unit" to 2 decimal places, intermediate and final answers to the nearest whole number.)

2. How many units must be sold each month to attain a target profit of $10,836 per month? (Round "per unit" to 2 decimal places, intermediate and final answer to the nearest whole number.)

3. If the sales manager receives a bonus of 25 cents for each unit sold in excess of the break-even point, how many units must be sold each month to attain a target profit that equals a 28% return on the monthly investment in fixed expenses? (Round "per unit" to 2 decimal places, intermediate and final answer to the nearest whole number.)

Answer 1

Req 1
				UPTO	BEYOND
				30300	30300
Selling price				2.8	2.8
Less: variable cost				1.78	1.96
Contribution per unit				1.02	0.84
Contribution earned earned till 30,300 unist: 30300 units @1.02= $ 30906
Fixed cost upto 30300 units: 45859
Therefore, break even will not oci=ur within 30300 units, we need to exceed beyond 30300 units
Fixed cost to be recovered from sales beyond 30300 units:
Fixed cost up to 30300 units						45859
Add: Additional cost of rentals						2293
Less: Contribution recovered from selling 30300 units						-30906
Fixed cost to be recovered from sales beyond 30300 units:						17246
Contribution margin per unit beyond 30300 units						0.84
Additional units to be sold for break even						20531
Therefore,
Break even point in units (30300+20531) =				50831
Break even sales in $(50831 units @2.80)				$142,327
Req 2:
Fixed cost ot be recovered from sales beyond 30300 units						17246
Add: target profit						10836
Desired contribution						28082
Contribution margin per unit beyond 30300 units						0.84
Additional units to be sold beyond 30300 units						33431
Total units to be sold to attain profits of $10836 (30300+33431) :    63731 units
Req 3:
Revised contribution margin are as under
				UPTO	BEYOND
				30300	30300
Selling price				2.8	2.8
Less: variable cost				1.78	1.96
Less; sales commission				0	0.25
Contribution per unit				1.02	0.59
Contribution earned earned till 30,300 unist: 30300 units @1.02= $ 30906
Fixed cost to be recovered from sales beyond 30300 units:
Fixed cost up to 30300 units						45859
Add: Additional cost of rentals						2293
Less: Contribution recovered from selling 30300 units						-30906
Add: target profit (28% of total fixed cost i.e.(45859+2293)						13483
Desired contribution						30729
Contribution margin per unit beyond 30300 units						0.59
Additional units to be sold beyond 30300 units						52083.05
Totall Units to be sold to earn 28% on fixed cost: (52083+30300) : 82383 units