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 $2.60 per unit. Enough capacity exists in the company’s plant to produce 31,000 units of the toy each month. Variable expenses to manufacture and sell one unit would be $1.66, and fixed expenses associated with the toy would total $43,210 per month.

The company's Marketing Department predicts that demand for the new toy will exceed the 31,000 units that the company is able to produce. Additional manufacturing space can be rented from another company at a fixed expense of $2,161 per month. Variable expenses in the rented facility would total $1.82 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 $9,594 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 20 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 30% 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

Answer =
1) Monthly- Break even point for new toy
Upto 31000 units
Contribution = sales - variable cost = 2.6 - 1.66 = 0.94
Fixed cost = 43210
At 31000 units, current contribution cover $29,140 (31000 * 0.94)
Uncovered fixed cost = 43210 - 29140 = 14070
Additinal fixed cost = 2161
Contribution at new factory = Sales - variable cost
= 2.6 - 1.82 = 0.78
Break even point for new factory = Fixed cost / Contribution per unit
= (14070+ 2161 ) / 0.78
= 20809 Units
Monthly break even point = 31000 + 20809 = 51808
Monthly break even point in $ = 51808 * $2.6 = $ 134703

2 Units to be sold to earn a profit of $9594 over 31000 units = (Fixed cost +Desired profit) / Contribution per unit
= (14070+ 2161 + 9594 ) / 0.78 = 33108.97 = $33109
Units to be sold to earn a profit of $ 9594
= 31000 + 33109 = 64109 units
in $ = 64109 * $ 2.6 = $166683

3 Return required = Fixed cost * 30%
= (43210 + 2161 ) * 30% = 13611
New variable cost in new factory = Current variable cost + Bonus to sales manager
= 1.82+ 0.20 = 2.02
New contribution = 2.6 - 2.02 = 0.58
Units to be sold to earn a profit of $ over 31000 units = (Additional fixed cost + Desired profit) / Contribution per unit
= (14070+ 2161 + 13611 ) / 0.58 = 33108.97 = 51452
Units to be sold to earn a profit of $ 13611 = 31000 + 51452 = 82452 units
In $ = 82452 * 2.6
= 214375