Question

Neptune Company produces toys and other items for use in beach and resort areas. A small, inflatable toy has come onto the market that the company is anxious to produce and sell. The new toy will sell for $2.80 per unit. Enough capacity exists in the company's plant to produce 30,500 units of the toy each month. Variable expenses to manufacture and sell one unit would be $1.78, and fixed expenses associated with the toy would total $46,165 per month points The company's Marketing Department predicts that demand for the new toy will exceed the 30,500 units that the company is able to produce. Additional manufacturing space can be rented from another company at a fixed expense of $2,308 per month. Variable expenses in the rented facility would total $1.96 per unit, due to somewhat less efficient operations than in the main plant. eBook Print Required: 1. What is the monthly break-even point for the new toy in unit sales and dollar sales. 2. How many units must be sold each month to attain a target profit of $10,752 per month? 3. If the sales manager receives a bonus of 20 cents for each unit sold in excess of the break-even point, how many units must be sold each month to attain a target profit that equals a 30% return on the monthly investment in fixed expenses? References (For all requirements, Round "per unit" to 2 decimal places, intermediate and final answers to the nearest whole number.) 1. units Break-even point in unit sales Break-even point in dollar sales units Unit sales needed to attain target profit Unit sales needed to attain target profit 3. units

Answer 1

Ans:

1. break even units are where there is no profit no loss

contribution margin = fixed cost

suppose 1st condition units are X and new facility units are Y

contribution margin = sales-variable

(2.80-1.78)X + (2.80-1.96)Y = 46165+2308

=(1.02)30500+0.84y = 48473

.84y=48473-31110

y =20670

break even units = X+Y

=30500+20670

=51,170 units

sales in dollar = 51,170 units *2.80 sales price = 143,276 $

2.As the existing facility is used for break even , we will have to use new facility to earn profit.

so we will use new facility contribution margin.

[target profit / contribution margin ] + break even units = sales required

10752/0.84 + 51,170

=12800+51170

=63,970 units are required to be sold

3.target profit

=(46165+2308)*25%

=12118$

suppose the units sold above breakeven are X

target profit+additional expense = contribution margin

0.25X + 12118 = 0.84X

=0.59x=12118

x=20539 units above break even

total units = 20,539+51170 break even

=71,709 units