Question

In: Accounting

Chester has a new design for their product City next round that can reduce their material...

Chester has a new design for their product City next round that can reduce their material cost of producing units from $8.14 to $7.32. Chester passes on half of all cost savings by cutting the current price to customers. For simplicity:

- Use current labor costs of $4.06
- Assume all period costs as reported on Chester's Income Statement (Annual Rpt Pg 2) will remain the same.

Determine how many units (000) of product City would need to be sold next round to break even on the product.

(Product Name:)	Cell	City	Cozy	Cute	Crimp	Cake	Na	Na	2021 Total	Common Size
Sales	$16,174	$34,748	$40,214	$31,895	$32,448	$23,167	$0	$0	$178,646	100.0%

Variable Costs:
Direct Labor	$1,852	$7,426	$9,843	$5,881	$8,616	$4,675	$0	$0	$38,293	21.4%
Direct Material	$5,654	$15,370	$16,581	$11,722	$13,843	$9,782	$0	$0	$72,951	40.8%
Inventory Carry	$544	$449	$753	$616	$68	$0	$0	$0	$2,430	1.4%
Total Variable	$8,049	$23,244	$27,178	$18,219	$22,527	$14,457	$0	$0	$113,674	63.6%

Contribution Margin	$8,124	$11,504	$13,036	$13,675	$9,922	$8,711	$0	$0	$64,972	36.4%


Period Costs:
Depreciation	$3,833	$4,753	$2,380	$2,267	$2,635	$2,475	$0	$0	$18,343	10.3%
SG&A: R&D	$983	$0	$973	$973	$995	$114	$0	$0	$4,039	2.3%
Promotions	$1,140	$1,140	$1,140	$1,140	$1,140	$1,140	$0	$0	$6,840	3.8%
Sales	$1,000	$1,000	$1,900	$2,200	$900	$900	$0	$0	$7,900	4.4%
Admin	$263	$564	$653	$518	$527	$376	$0	$0	$2,901	1.6%
Total Period	$7,219	$7,458	$7,046	$7,098	$6,197	$5,005	$0	$0	$40,022	22.4%

Net Margin	$906	$4,046	$5,990	$6,577	$3,725	$3,706	$0	$0	$24,950	14.0%

Production Information

City

Core

1,829

300

12/7/2019

3.1

16000

10.4

9.6

$19.00

$8.14

$4.06

33%

39%

10.0

1,550

137%

Expert Solution

Determination of how many units (000) of product City would need to be sold next round to break even on the product.
	Assume Table data given in (000)
BEP (Break even Point)	Fixed Cost
BEP (Break even Point)	Contribution Margin

	7457.00
	7.37
Units need to be sold to Break even on Products		1011 Units

	Note
		in $
1	Fixed Cost	Amount
	Depreciation	4753.00
	SG&A: R&D	0.00
	Promotions	1140.00
	Sales	1000.00
	Admin	564.00
		7457.00


2	Contribution Margin Per Unit
			Amount
	Selling Price		19.00
	(Assume Production equal to sales as no other data given)
	Sales	34748
	Units	1829

	Variable Cost per unit
	Direct Labor	4.06
	Direct Material	7.32
	Inventory Carry (449/1829) = 0.25	0.25
			11.63

	Contribution Margin Per Unit = Selling Price - Variable cost per unit		7.37

ekkarill92 answered 1 year ago

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