Question

PF Corporation makes three different clothing fasteners in its manufacturing facility in North Carolina. Data concerning these products appear below:

                                                                                       V                      M                     N

Normal Annual Sales Volume                                     100000            200000            400000

Unit Selling Price                                                         $1.65              $1.50             $0.85

Variable Expenses per unit                                         $1.25              $0.70             $0.25

Total Fixed Expenses are $400,000 per year.

All the three products are sold in highly competitive markets, so the company is unable to raise its prices without losing unacceptable numbers of customers.

The company has an extremely effective lean production system, so there are no beginning or ending work in process or finished goods inventories.

Required:

1. What is the company’s break-even point in dollar sales?
2. Compute the break-even point for each product using contribution margin approach.
3. Critically analyze all the three products and suggest which product should be removed from the market with valid justifications.
4. Discuss the usefulness of Break-Even Analysis to various stakeholders such as customers, marketing departments and finance department of an organization.
5. Critically evaluate the limitations of Break-Even Analysis

           

Answer 1

	V($)	M($)	N($)	total($)
Sales (units)	100000	200000	400000	700000
selling price per unit	1.65	1.5	0.85	4
- variable expense per unit	-1.25	-0.7	-0.25	-2.2
contribution	0.4	0.8	0.6	1.8
pv ratio	0.242424	0.533333	0.705882	0.45
fixed expenses				400000

Break even point (dollar sales) = Fixed cost/pv ratio

                                                       =$400000/.45

                                                       =$888,889 approx

As nothing is mentioned regarding each products fixed cost and for further parts there is a lack of information. question for remaining is missing