Question

JBeats produce and sell a product that has variable costs of $33 and a selling price of $68 . Its current sales total $204,000 per month. Fixed manufacturing costs total $25,000 per month and fixed selling and administrative costs total $17,000 per month. The company is considering a proposal that will increase the selling price by 5%, increase the fixed manufacturing costs by 5%, and increase the fixed selling and administrative costs by $3,500. A. Compute JBeats’s current break-even point in units. B. Compute JBeats’s margin of safety in dollars. C. Compute JBeats’ss net income. D. Compute JBeats’s breakeven point in units assuming they accept the proposal. E. Compute JBeats’s net income assuming they accept the proposal and sales total 3,300. Label and place your final answer for A-E at the top of the answer box. Then after the answer to E, label and show your work for each part of the question. Just show me numbers – that is usually enough for me to follow your logic.

Answer 1

A. BEP in Units		1200 Units
B. Margin of safety in dollars		$       1,22,400
C. Net Income		$           63,000
D. Proposed BEP in Units		1217 Units
E. Proposed Net Income		$           79,970
A. BEP in Units =	Fixed Cost
	Sale price per unit - Vriable cost per unit
Fixed Cost =	Fixed Manufacturing Cost + Fixed Selling and administration cost
=	$25000 + $17000
=	$                 42,000
BEP in Units =	$42000
	$68 - $33
=	1200	Units
B. Margin of safety in dollar =		Actual Sales - BEP sales
	=	$ 204000 - 1200*$68
	=	$204000 - $81600
	=	$       1,22,400
C. Calculation of Net Income
Sales		$       2,04,000
Sales in Unit (204000/68 = 3000 units)
Less: Variable Cost ( $33 * 3000 units)		$           99,000
Contribution Margin		$       1,05,000
Less: Fixed Cost
Fixed Manufacturing Cost		$         -25,000
Fixed selling & administrative cost		$         -17,000
Net Income		$           63,000
D. If Jbeats's acccepts the proposal
Sale price = $ 68 + 5% of $68		$             71.40
Fixed Manufacturing Cost (25000+5% of 25000)		$           26,250
Fixed Selling & administration cost ( 17000+3500)		$           20,500
Total Fixed Cost		$           46,750
BEP in Units =	Fixed Cost
	Sale price per unit - Vriable cost per unit
=	$46750
	$71.40 - $33
=	1217	Units
E. Calculation of Net Income
(If Selling Units 3300 and they accept the proposal)
Sales (3300* $71.40)		$       2,35,620
Less: Variable Cost ( $33 * 3300 units)		$       1,08,900
Contribution Margin		$       1,26,720
Less: Fixed Cost
Fixed Manufacturing Cost		$         -26,250
Fixed selling & administrative cost		$         -20,500
Net Income		$           79,970