Question

Problem 5-25 Changes in Fixed and Variable Costs; Break-Even and Target Profit Analysis [LO5-4, LO5-5, LO5-6]

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 $2.70 per unit. Enough capacity exists in the company’s plant to produce 30,400 units of the toy each month. Variable expenses to manufacture and sell one unit would be $1.72, and fixed expenses associated with the toy would total $44,188 per month.

The company's Marketing Department predicts that demand for the new toy will exceed the 30,400 units that the company is able to produce. Additional manufacturing space can be rented from another company at a fixed expense of $2,209 per month. Variable expenses in the rented facility would total $1.89 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 $10,125 per month?

3. If the sales manager receives a bonus of 25 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 21% return on the monthly investment in fixed expenses?

(For all requirements, Round "per unit" to 2 decimal places, intermediate and final answers to the nearest whole number.)

	1. Break-even point in unit sales units Break-even point in dollar sales 2. Unit sales needed to attain target profit units 3. Unit sales needed to attain target profit

Problem 5-24 Break-Even and Target Profit Analysis [LO5-5, LO5-6]

The Shirt Works sells a large variety of tee shirts and sweatshirts. Steve Hooper, the owner, is thinking of expanding his sales by hiring high school students, on a commission basis, to sell sweatshirts bearing the name and mascot of the local high school.

These sweatshirts would have to be ordered from the manufacturer six weeks in advance, and they could not be returned because of the unique printing required. The sweatshirts would cost Hooper $17.00 each with a minimum order of 200 sweatshirts. Any additional sweatshirts would have to be ordered in increments of 50.

Since Hooper’s plan would not require any additional facilities, the only costs associated with the project would be the costs of the sweatshirts and the costs of the sales commissions. The selling price of the sweatshirts would be $34.00 each. Hooper would pay the students a commission of $7.00 for each shirt sold.

Required:

1. What level of unit sales and dollar sales is needed to attain a target profit of $7,000?

2. Assume that Hooper places an initial order for 200 sweatshirts. What is his break-even point in unit sales and dollar sales? (Round your intermediate calculations and final answers to the nearest whole number.)

***I need to know the second part of #1, the "Dollar Sales needed to attain the target profit", All the other answers are correct.

Unit sales needed to attain the target profit	700selected answer correct	sweatshirts
	Dollar sales needed to attain the target profit	answer incorrect
2.	Break-even point in unit sales	126selected answer correct	sweatshirts
	Break-even point in dollar sales	$4,284selected answer correct

Thank you!

Answer 1

1. 
   Question 1 1 Break Even Point in Unit Sales Break Even point in dollar Sales (50900*2.7) $ 2 Unit sales needed to attain target profit 3 Unit sales needed to attain target profit 50900 Units 137,430 63400 Units 68299 Units Working Note: Requirement (1) Break even Point in Unit sales : Minimum Unit Sales + Additional Unit Sales 30400 + 20500 Units 50900 Units Additional Unit Sales : Additional Fixed Costs / Contribution margin per unit for addl unit sales 16605/(2.7-1.89) 20500 Units Additional Fixed Costs : Fixed cost for first 30400 units Less; Contribution margin for 30400 unit Fixed costs to be recovered for 30400 units Add : Additional fixed costs Total Additional Fixed costs $ $ $ $ $ 44,188 (29,792) 14,396 2,209 16,605 Requirement (2) Number of Units = Break even in units + (Profit to be earned/contribution margin per unit for add unit sales) 50900 units + (10125/0.81) 63400 Units Requirement (3) Number of units = 50900+(21%*46397)/(0.81-0.25)) 68299 Units Note : Please comment down for any further clarifications / issues Note : There may be variance of 1 unit +/- due to round off comment down in case of any issue As Per Chegg Guidelines, only 1 Question should be answered at a time, Thank you