Question

Jordan and Taylor are beginning to understand break-even analysis. Selling price to Yumminess at $10 per tin. The cost is $8 per tin, which includes $6 of direct material and $1.50 of direct labor. Annual manufacturing overhead is estimated at $100,000 for the expected sales of 200,000 tins. Operating expenses are projected to be $80,000 annually. After looking over the costs for manufacturing overhead and operating expenses, you approximate that 85% of manufacturing overhead and 20% of operating expenses are variable costs. They are now discussing options with adjustments to costs and sales. As long as they keep bringing brownies, you keep turning out numbers.

Please include all calculations, will give a like.

Answer 1

Given Selling Price to Yurriminess 10.00 Direct Material Per Unit Direct Labour Cost per unit 6.00 1.50 Manufacturing Overhead Per Annum (For 200,000 units) $ 1,00,000.00 Given 85% of the Manufacturing overhead expenses are variable Therefore, Variable Manufacturing Overheads are (85% X 100000) 85,000.00 15,000.00 Fixed Manufacturing Overheads (15% X 100000) $ Variable Manufacturing Overhead Per Unit (85000/200000) $ 0.42 Operating Overhead Per Annum (For 200,000 units) $ 80,000.00 Given 20% of the Manufacturing overhead expenses are variable Therefore, Variable operating Overheads are (20% X 80000) Fixed operating Overheads (80% X 80000) $ $ $ 16,000.00 64,000.00 0.00 Variable Operating Overhead Per Unit (16000/200000) 1. When Jordan and Taylor considered advertising Campain of $40,000 annually Computation of Net Profit Since First Question involves no monthly analasys - sales volume of 200,000 tins are considered Total Sales (units) Per TIN 2,00,000.00 $ 2,10,000.00 Selling cost per Tin 10.00 $ 20,00,000.00 $ 21,00,000.00 Direct Materials 12,00,000.00 $ 12,60,000.00 Direct Labour 3,00,000.00 $ 3,15,000.00 Variable manufacturing Overhead 84,000.00 $ 88,200.00 Variable Operating Overheads 0.08 $ 16,000.00 $ 16,800.00 Total Variable Cost F=B+C+D+E 8.00 $ 16,00,000.00 $ 16,80,000.00 CONTRIBUTION G=A-F 2.00 S 4,00,000.00 $ 4,20,000.00 Fixed Costs Variable manufacturing Overhead 15,000.00 $ 15,000.00 Variable Operating Overheads 64,000.00 $ 64,000.00 Selling Expenses $ 40,000.00 Total Fixed Costs K=H+1+] 79,000.00 $ 1,19,000.00 NET PROFIT (LOSS) LEG-K 3,21,000.00 $ 3,01,000.00 THE NEW NET INCOME WHEN JORDAN AND TAYLOR SPEND $40,000 ON SELLING EXPENSES AND WHEN SALES INCREASED BY 10% IS --- $ 3,01,000/-

SINCE QUESTIONS 2 & 3 INVOLVE MONTHLY ANALASYS WE ARE GOING TO CONSIDER VOLUME OF 500,000 TINS For questions 2 & 3 Yumminess Wants Jordan and Taylor to reduce selling Price By 10% Actual Selling Price 10.00 new selling price (10 X 90%) 9.00 Given Montly Sales Volume should be based on 500,000 tins Given additional Sales for monthly special -50,000 Computation of new profit or loss for (550,000 tis - 500,000 + 50,000) Total Sales (units) Per TIN 5,00,000.00 5,50,000.00 Selling cost per Tin 9.00 $ 45,00,000.00 $ 49,50,000.00 Direct Materials 30,00,000.00 $ 33,00,000.00 Direct Labour 7,50,000.00 $ 8,25,000.00 Variable manufacturing Overhead 2,10,000.00 2,31,000.00 Variable Operating Overheads 40,000.00 $ 44,000.00 Total Variable Cost FEB+C+D+E 8.00 $ 40,00,000.00 $ 44,00,000.00 CONTRIBUTION G=A-F 1.00 $ 5,00,000.00 $ 5,50,000.00 Fixed Costs Variable manufacturing Overhead 15,000.00 $ 15,000.00 Variable Operating Overheads 64,000.00 $ 64,000.00 Total Fixed Costs K=H+1+] 79,000.00 $ 79,000.00 NET PROFIT (LOSS) LEG-K 4,21,000.00 $ 4,71,000.00 Net Income for Purpose of Question-3 is = $471,000 Break even Point For for Question 2 Selling price per unit Total Variable cost per unit Contrubution per unit Contribution Contribution margin ratio/ PV ratio - X 100 Sales -X100 0.1111 X 100 11.11%

At break Even Point - Fixed cost Must be equal to Contribution Fixed cost is same at Any production level only Variable Cost Changes From The Priliminary Calculations Above Fixed Cost = Fixed Manufacturing Overheads Fixed operating Overheads 15,000.00 64,000.00 Total Fixed Cost 79,000.00 Therefore, Contribution should also be 79,000.00 Sales when Contribution is $79,000 Sales Contribution PV ratio 79000 0.1111 $ 7,11,071.11 Selling price per unit 9.00 Sales Volume Total Sales Selling Price per Unit 711071 79007.88889 79,008 tins should be sold @ $9 to get break even METHOD -2 BEP Fixed Cost PV ratio 79000 0.1111 $ 7,11,071.11 Selling price per unit 9.00 Sales Volume Total Sales Selling Price per Unit 711071 79007.88889 79,008 tins should be sold $9 to get break even Answer to Question 2 is 70,008 units note: AT BEP. Contibution and fixed cost are same to get profit of "0", hence both the methods are technically same