Question

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." "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 6 points follow-up meeting at 9:00." eBook Piedmont Fasteners Corporation makes three different clothing fasteners in its manufacturing facility in North Carolina. Data concerning these products appear below: Print VelcroMetal Nylon Annual sales volume Unit selling price Variable expense per unit 119,000 195,000 288,000 $1.20 $0.90 $1.60 $0.80 $2.00 $1.40 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 Required 1. What is the company's over-all break-even point in dollar sales? 2. Of the total fixed expenses of $261,000, $23,200 could be avoided if the Velcro product is dropped, $98,400 if the Metal product is dropped, and $56,100 if the Nylon product is dropped. The remaining fixed expenses of $83,300 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?

Answer 1

1)	Computation of overall break-even point in dollar sales using C M ratio.
	Particulars	Velcro	Metal	Nylon	Total
	Sales	$190,400	$390,000	$345,600	$926,000
	(-)Variable expenses	$95,200	$273,000	$259,200	$627,400
	Contribution margin	$95,200	$117,000	$86,400	$298,600
	(-)Fixed cost				$261,000
	Profit				$37,600
	C M ratio = Contribution margin / sales*100
	=$298600/$926000*100
	=32.25%
	Overall break-even point in dollar sales=Fixed expenses/ C M ratio.
	=$261000/32.25%
	=809302

2)	a) Break-even point in unit sales for each product.
	Particulars	Velcro	Metal	Nylon
	Selling price per unit	$1.60	$2	$1.20
	(-)Variable expenses per unit	$0.80	$1.40	$0.90
	Contribution margin per unit(a)	$0.80	$0.60	$0.30
	(-)Product fixed cost (b)	$23,200	$98,400	$56,100
	Unit sales to break-even (b)/(a)	29000	164,000	187,000

b) If company sales exactly break-even quantity of each product , the overall profit/loss of company will be.
Particulars	Velcro	Metal	Nylon	Total
Sales	$46,400	$328,000	$224,400	$598,800
(-)Variable expenses	$23,200	$229,600	$168,300	$421,100
Contribution margin	$23,200	$98,400	$56,100	$177,700
(-)Fixed cost				$261,000
Loss				$83,300