Question

Case #2 i Saved 1 Cheryl Montoya picked up the phone and called her boss, Wes Chan, the vice president of marketing at Piedmont Fasteners Corporation: "Wes. I'm not sure how to go about answering the questions that came up at the meeting with the president yesterday." "What's the problem?" "The president wanted to know the break-even point for each of the company's products, but I am having trouble figuring them out." 100 points "I'm sure you can handle it, Cheryl. And, by the way, I need your analysis on my desk tomorrow morning at 8:00 sharp in time for the follow-up meeting at 9:00." Piedmont Fasteners Corporation makes three different clothing fasteners in its manufacturing facility in North Carolina. Data concerning these products appear below: eBook Metal 114,000 204,000 292,000 $ 1.80 $ 1.30 $ 1.10 $ 0.70 $ 0.80 $ 1.00 Nylon Velcro Annual sales volume Print Unit selling price Variable expense per unit References Total fixed expenses are $261,000 per year. All three products are sold in highly competitive markets, so the company is unable to raise prices without losing an 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. Requlred: 1. What is the company's over-all break-even point in dollar sales? 2 Of the total fixed expenses of $261.000, $23,540 could be avoided if the Velcro product is dropped, $86,000 if the Metal product is dropped, and $18.700 if the Nylon product is dropped. The remaining fixed expenses of $132,760 consist of common fixed expenses such as administrative salaries and rent on the factory building that could be avoided only by going out of business entirely. a. What is the break-even point in unit sales for each product? b. If the company sells exactly the break-even quantity of each product, what will be the overall profit of the company? Complete this question by entering your answers in the tabs below. Required 1 Required 2A Required 28 What is the company's over-all break-even point in dollar sales? (Round CM ratio to 4 decimal places and final answer to the nearest thousand dollars.) Break-even point in dollar sales < Required 1 Required 2A >

Answer 1

Piedmont Fasteners Corporation

Workings: ($)

	Velcro	Metal	Nylon	Entire Company
Sales (S)	114,000	204,000	292,000	610,000
Selling price (SP)	1.8	1.3	1.1
Variable cost (VC)	0.7	0.8	1.0
Contribution per unit (C) (SP - VC)	1.1	0.5	0.1
PV ratio (PVR) (C/SP)	61.11%	38.46%	9.1%
Contribution (S × PVR)	69,665	78,459	26,572	174,696

PV ratio (entire company) = Total Contribution / Total Slaes

= 174,696/610,000 = 28.64%

1) Break even point in Dollars = Fixed cost / PV ratio

= 261,000/28.64%

Break even point in dollars is $ 911,313

2A) Fixed cost & BEP ($)

	Velcro	Metal	Nylon	Total company
Fixed cost (Specific)	23,540	86,000	18,700	129,240
Fixed cost (Remaining) Divided between products as per sales	132,760×114,000/610,000 = 24,811	132,760×204,000/610,000 = 44,398	132,760-24,811-44,398 = 63,551	132,760
	48,351	130,398	82,251	261,000
Contribution per unit	1.1	0.5	0.1
Break even point in units	43,955 units	260,797 units	822,510 units

2B) The concept Break even point is to know about the stage at which the entity derive no profit or no loss, hence in the present case each product covers their respective fixed cost in selling exact units as per break even point and for the entire company it is a situation of no profit or no loss.