Question

Problem 3-38 (Part Level Submission) Sunland Company produces a molded briefcase that is distributed to luggage stores. The following operating data for the current year has been accumulated for planning purposes. Sales price $42.00 Variable cost of goods sold 14.00 Variable selling expenses 12.60 Variable administrative expenses 5.00 Annual fixed expenses Overhead $22,261,200 Selling expenses 4,423,700 Administrative expenses 9,275,500 Sunland can produce 4,281,000 cases a year. The projected net income for the coming year is expected to be $5,137,200. Sunland is subject to a 40% income tax rate. During the planning sessions, Sunland's managers have been reviewing costs and expenses. They estimate that the company's variable cost of goods sold will increase 15% in the coming year and that fixed administrative expenses will increase by $428,100. All other costs and expenses are expected to remain the same. Sunland Company's managers are considering expanding the product line by introducing a leather briefcase. The new briefcase is expected to sell for $92.00; variable costs would amount to $38.00 per briefcase. If Sunland introduces the leather briefcase, the company will incur an additional $856,200 per year in advertising costs. Sunland's marketing department has estimated that one new leather briefcase would be sold for every four molded briefcases (a) Your answer is incorrect. Try again If managers decide to introduce the new leather briefcase, how many units of each briefcase would be required to break even in the coming year? Cost of goods sold for the molded briefcase is expected to be $16.10 per unit. (For computational purposes round contribution margin per unit to 2 decimal places, e.g. 0.38. Round answers to 0 decimal places, e.g. 25,000.) Molded Briefcase Leather Briefcase 15856 4384157 Break even units

Answer 1

	current case	leather case
revenue	42	92
variable
cost of goods sold	16.1[14+15%]
sellin	12.6
administrative	5
Total variable	33.7	38
contribution margin per unit	8.3[42-33.7]	54[92-38]
fixed exps
overhead			22261200
sell			4423700
administratove	[9275500+428100]		9703600
advertising			856200
total fixed			37244700

suppose the total units sold are X

	contribution margin	sales mix	contribution weighted margin
molded	8.3	4X	33.2x
leather	54	1X	54x

Total contribution margin should equal fixed cost to break even

at break even there is no profit no loss so tax rates to be ignored

(33.2X+54X) =37244700

x=427118

molded= 4X = 427118*4=1708472

leather = 1x = 427118

Answer

molded = 1708472

leather = 427118