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 $2.60 per unit Enough capacity exists in the company's plant to produce 30,100 units of the toy each month. Variable expenses to manufacture and sell one unit would be $1.66, and fixed expenses associated with the toy would total $41,941 per month The company's Marketing Department predicts that demand for the new toy will exceed the 30,100 units that the company is able to produce. Additional manufacturing space can be rented from another company at a fixed expense of $2.097 per month. Variable expenses in the rented facility would total $182 per unit, due to somewhat less efficient operations than in the main plant. 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 $9.750 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 24% return on the monthly investment in fixed expenses? (For all requirments, Round "per unit to 2 decimal places, intermediate and final answers to the nearest whole number.) Break-even point in unit Sales Break-even point in doar sales Unit sales needed to attain target pro 3. Unit als needed to target profit

Answer 1

ANSWER

#1) :

Let the break even quantity per month = V

Based on the new facility,

Fixed expenses per month = F = $2,097

Variable expenses = C = $1.82 / unit

Selling price = P = $2.60/ unit

At break even point,

P.V = C.V + F

Or, 2.60.V = 1.82 .V + 2,097

Or, 0.78.V = 2,097

Or, V = 2,688( rounded off to nearest whole number)

Monthly $sales at break even point

= Break even quantity x Selling price per unit

= 2,688 x 2.60

= 6,988.80

BREAK EVEN POINT IN UNIT SALES = 2,688 UNITS PER MONTH

BREAKEVEN POINT IN $ SALES = $ 6,988.80 PER MONTH

#2):

Let the number of units to be sold per month = V1

Monthly profit = Total sales value – Fixed cost – Total variable cost

Monthly profit = $ 9,750

Therefore,

2.60 .V1 – 1.82 .V2 – 2,097= 9,750

Or, 0.78,V1 – 2,097= 9,750

Or, 0.93.V1 = 11,847

Or, V1 = 15,188.46

TOTAL UNITS TO BE SOLD = 15,188.46

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