Question

In: Accounting

Jordan and Taylor are beginning to understand break-even analysis. Selling price to Yumminess at $10 per...

Jordan and Taylor are beginning to understand break-even analysis.

Selling price to Yumminess at $10 per tin. The cost is $8 per tin, which includes $6 of direct material and $1.50 of direct labor. Annual manufacturing overhead is estimated at $100,000 for the expected sales of 200,000 tins. Operating expenses are projected to be $80,000 annually.

After looking over the costs for manufacturing overhead and operating expenses, you approximate that 85% of manufacturing overhead and 20% of operating expenses are variable costs.

They are now discussing options with adjustments to costs and sales. As long as they keep bringing brownies, you keep turning out numbers.

1. Jordan and Taylor are considering an advertising campaign for $40,000 annually. They expect this to increase sales by 5%. What would be the new net income? (5 points)

2. Yumminess wants to feature Chocolate Attack Brownies as a monthly special. The predicted sales volume is 50,000 tins. Yumminess wants Jordan and Taylor to cut their selling pricing by 10%, citing that the volume will more than make up the difference. What will be the break-even point in tins during this sale? (5 points)

3. Yumminess wants to feature Chocolate Attack Brownies as a monthly special. The predicted sales volume is 50,000 tins. Yumminess wants Jordan and Taylor to cut their selling pricing by 10%, citing that the volume will more than make up the difference. What net income can Jordan and Taylor expect during this offer? (5 points)

Can you not put the anwsers into a statement sheet.

Solutions

Expert Solution

1

Net income

$

$

Selling price per unit

$10 per tin

Direct Material (given)

$6

Direct labor (given)

$1.50

Manufacturing overhead:

[Annual MOH * 85%]/number of tins expected

[100,000*85%]/200000

$0.425

Operating expense:

[Annual operating expense*20%]/number of tins expected

[80000*0.2]/200000

$0.008

Total variable cost

$8.005 per tin

contribution

$1.995

Number of units sold when sale is increase to 5%

[200000*(100+5%)]

210000

Total contribution Margin (210000*1.995)

418950

Fixed costs:

Manufacturing overhead

15000

Operating expense [80000*80%]

64000

Advertising

40000

119000

Net income

299950

2

Break even point:

Fixed costs:

Manufacturing overhead[100000*15%]

15000

Operating expense [80000*80%]

64000

79000

If selling price cut down by 10% then variable contirbution will be

($10-10%)-$8.005

$0.995

Break even point

[sales/ Contribution per unit]

79397 tins

3

Selling price per unit (10-10%)

9

Variable cost (calculated in (1) above

8.005

Contribution Margin per unit

0.995

Number of units sold (200000+50000 tins)

250000 tins

Contribution margin (250000*0.995)

248750

Fixed cost

79000

Profit

169750


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