Question

Neptune Company has developed a small inflatable toy that it is anxious to introduce to its customers. The company's Marketing Department estimates that demand for the new toy will range between 15,000 units and 35,000 units per month. The new toy will sell for $8.00 per unit. Enough capacity exists in the company's plant to produce 20,000 units of the toy each month. Variable expenses to manufacture and sell one unit would be $4.00, and incremental fixed expenses associated with the toy would total $36.000 per month Neptune has also identified an outside supplier who could produce the toy for a price of $3.00 per unit plus a fixed fee of $45,000 per month for any production volume up to 20,000 units. For a production volume between 20,001 and 45,000 units the fixed fee would increase to a total of $90,000 per month. Required: 1. Calculate the break-even point in unit sales assuming that Neptune does not hire the outside supplier 2. How much profit with Neptune earn assuming: a. It produces and sells 20,000 units. b. It does not produce any units and instead outsources the production of 20,000 units to the outside supplier and then sells those units to its customers. 3. Calculate the break-even point in unit sales assuming that Neptune plans to use all of its production capacity to produce the first 20,000 units that it sells and that it also commits to hiring the outside supplier to produce up to 15,000 additional units. 4. Assume that Neptune plans to use all of its production capacity to produce the first 20,000 units that it sells and that it also commits to hiring the outside supplier to produce up to 15,000 additional units. a. What total unit sales would Neptune need to achieve in order to equal the profit earned in requirement 2a? b. What total unit sales would Neptune need to achieve in order to attain a target profit of $46,500 per month? c. How much profit will Neptune earn if it sells 35,000 units per month? d. How much profit will Neptune carn if it sells 35,000 units per month and agrees to pay its marketing manager a bonus of 20 cents for each unit sold above the break-even point from requirement 3? 5. If Neptune outsources all production to the outside supplier, how much profit will the company earn if it sells 35,000 units? units 1. Break even point in unit sales - without hiring 2a. Profit if produces and sells 2b. Profit if outsources production and sells Rrankun niin rinit sains. hirinn inite 13

Answer 1

20000 . = $36000 P.M. Cuptozoo oo its) Demand a 15000 to 35000 Pm. vorrichtingen en bescoperit sy.oo posmit piant capacity perman fixed cost Relati unting to soy production curside supplies - $3.00ps toyt Buse -$4500 o fixedfee Pin 19000 of bedfeed prys (2000) to 45000 units) I Break Ever polut if outsich supplier is not hired: fixed Cor= $36000. contribusion, &8-$4 = prunit - superint 36000 goooonids. Break even point 4 2. Calculation of profiter Honey hoooo toys : 20000 ( 84) - 36000 $44000 Outsource the productions 20000 (8-3) - 48000 = $55000 3 Calculation of freak Even point: Torcy fixed Cost = $36000x45000 $82000. - 9 Sell

y a profit in 2000 a $44000 so Equation would be on follows's ६५५००० [Q0000X4) +ex53-81000 $125000 = 8oooo +52 2- 9000 units. 5 So we need to sell 5000 units of ounide supplier to gain some poofiras 269). Toralanib/= 29000 units ы. & (b). Toral contribution Required to profit of 46500 46500+81000 -$127500 Fort Bota 12750o-soooo 47500 le. 47500/5 = 9500 units jourside supplier total umit fore -2000O 79500 29500 ( (otoral profitru goreng 35000 min; (20000+y)+(5000x3] - 81000 $74,000 (6) profit if all production is outsourced : ( 35000x5) – 90000 $ 85,000 permouth with,