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
Current break-even point in units.	1200
B
Margin of safety in dollars.	122400
C
Net income	63000
D
Break-even point in units , accept the proposal	1217	(rounded off)
E
Net income	79970
Workings:
A
Total fixed costs	42000	=25000+17000
Divide by Unit Contribution margin	35	=68-33
Current break-even point in units	1200
B
Current sales total	204000
Less: Break even sales	81600	=1200*68
Margin of safety in dollars.	122400
C
Sales	204000
Less: Variable expenses	99000	=(204000/68)*33
Contribution margin	105000
Less: Fixed expenses	42000
Net income	63000
D
Selling price	71.4	=68*1.05
Fixed manufacturing costs	26250	=25000*1.05
Total fixed costs	46750	=26250+17000+3500
Divide by Unit Contribution margin	38.4	=71.4-33
Breakeven point in units , accept the proposal	1217
E
Sales	235620	=3300*71.4
Less: Variable expenses	108900	=3300*33
Contribution margin	126720
Less: Fixed expenses	46750
Net income	79970