Question

Question 6 e and f

5) Base scenario calculations: Using the Profit Formula calculated in 5) above, calculate the following assuming TrucBeat produces and sells 6,000 units as their "base" scenario Sales Revenue 6,00 SIL - 3.045,00 Net Operating Income 1,778. Ob Contribution Margin 2.052/ Contribution Margin Contribution Margin percent 2.082,0/3,091,00 87.252 Break-even in units 304,0*/62087, 00/000304,00) 347 976 units Break-even in dollars 3040/67.25 452,046 Margin of safety in units 6.400- 76+ 5.124 wnik Margin of safety percent (3.06,0 - 452,04 53/3916000 = 15.40 Margin of safety in dollars 3.0,000 -452,045 2,643,755 Degree of Operating Leverage 2,022,000 / 1.778.000 1.17 Looking at changes: TrueBeat is not confident their expenses will hold in year 4. Management wants to cxamine the potential impact of the following situations. Assume cach situation independent of one another. The Profit Formula and 6,000 units produced and sold for Year 4 as your "base scenario. 6) Increase to costs: The production manager is anticipating inflation and other increase that will result in total variable expenses increasing by 20%. a) What will the new profit formula be? Net Profit C Net sales - Lost of Production) b) What will the CM ratio and Break-Even point in units be with the labor increase? Note - Requirement asks for CM ratio, NOT contribution margin in dollars or contribution per unit. Total Sals: 5 16 > 1000 516,000 Variable costa 33,000+ (as* too units) - $58,000 CM ratio 516,000 - 58,000 2=0.88 DO Break ben Point 415,000/ (516-5): c) If they produce and sell the same number of units for Year 4, what will their new Net Operating 906 Income, NOI, be? 516,000 - 415,000 - 58,000 = 43,000 d) How many units will TrueBeat need to sell to maintain the same operating income as originally planned for Year 4? 1000 units e) Assume TrueBeat Company need to make a minimum profit of $1,000,000 to keep its creditors and investors happy. What minimum sales price will they need to charge if they produce and sell 6,000 units? Hint: Remember that CM = Sales price - Variable expenses. Conclusion: Use your calculation above, should TrueBeat be concerned about future costs increases? Make sure your answer uses complete sentences and includes 30 to 50 words to support your answer.

Answer 1

Q6.e Calculation of minimum sale price Sale unit 6000 units Variable cost per unit $169 (1014000/6000) Fixed cost $304000 Minimum profit required $1000000 Desired sales = Fixed cost + minimum profit Selling price - Variable cost 6000 = 6000(SP - 169) = 6000SP = SP = SP = 304000+1000000 SP - 169 1304000 1304000+1014000 2318000/6000 $386.33 Minimum Sale price is $386.33

6.f Yes TrueBeat should be concerned about future increase in price as increase in price will lead to increase in selling price which may decrease the demand of the product Increase in variable cost have direct impact on selling price this increases the total cost of production Therefore the company should be concerned abou the increase in cost