Question

(generate an incremental contribution margin of $38,500)? 2-44 Multiproduct breakeven analysis, target profit, taxes Johnson Company manufactures a sin- gle product called the Gripper. Patients, under the direction of physiotherapists, use the Gripper to restore, to the extent possible, normal hand functions. The Gripper has the following per-unit revenue and costs: Revenue $20 Direct materials cost. Direct labor cost Variable overhead Contribution margin per unit $6 Johnson Company has fixed manufacturing costs of $1 million per year and fixed general, and administrative expenses of $500,000 per year. Required (a) How many Grippers must Johnson Company sell in order to break even? (b) How many Grippers must Johnson Company sell in order to earn a target profit of $300,000? (e) The Johnson Company sales manager has come up with an idea for a new product called the Gripper Plus. The sales manager is projecting a sales mix of 300,000 units of the Gripper and 100,000 units of the Gripper Plus. The Gripper Plus has the following per-unit revenue and costs: Revenue $36 Direct materials cost. Direct labor cost Variable overhead Contribution margin per unit. 6 $10

Answer 1

(a)
Break even units = Fixed Costs / Contribution Margin per unit
= $1500000 / 6 = 250000 units

(b)
Units required = (Fixed Costs + Desired Profit) / Contribution Margin per unit
= ($1500000+300000) / 6 = 300000 units

(c)
Weighted Average Contribution Margin per unit = ($6 x 3 + $10 x 1) / 4 = $7 per unit
Desired Before tax profit = $187500 / 75% = $250000

Units required to sell = ($1500000+250000) / 7 = 250000 units

Gripper = 250000 / 4 x 3 = 187500 units
Gripper Plus = 62500 units

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