Question

Cheryl Montoya picked up the phone and called her boss, Wes Chan, the vice president of marketing at Piedmont Fasteners Corporation: “Wes, I’m not sure how to go about answering the questions that came up at the meeting with the president yesterday.”

"What's the problem?"

“The president wanted to know the break-even point for each of the company’s products, but I am having trouble figuring them out.”

“I’m sure you can handle it, Cheryl. And, by the way, I need your analysis on my desk tomorrow morning at 8:00 sharp in time for the follow-up meeting at 9:00.”

Piedmont Fasteners Corporation makes three different clothing fasteners in its manufacturing facility in North Carolina. Data concerning these products appear below:

	Velcro		Metal		Nylon
Annual sales volume	113,000		202,000		313,000
Unit selling price	$	1.30	$	1.50	$	0.70
Variable expense per unit	$	0.70	$	1.00	$	0.50

Total fixed expenses are $262,000 per year.

All three products are sold in highly competitive markets, so the company is unable to raise prices without losing an unacceptable numbers of customers.

The company has an extremely effective lean production system, so there are no beginning or ending work in process or finished goods inventories.

Required:

1. What is the company’s over-all break-even point in dollar sales?

2. Of the total fixed expenses of $262,000, $13,800 could be avoided if the Velcro product is dropped, $85,000 if the Metal product is dropped, and $40,000 if the Nylon product is dropped. The remaining fixed expenses of $123,200 consist of common fixed expenses such as administrative salaries and rent on the factory building that could be avoided only by going out of business entirely.

a. What is the break-even point in unit sales for each product?

	Velcro Metal Nylon Break-even point in unit sales

b. If the company sells exactly the break-even quantity of each product, what will be the overall profit of the company?

Answer 1

First prepare all statements that will be required to you and then apply all the relevant formula to get the answer as shown in the solution.
Answer 1: Statement showing BEP of the company Total 0.7 Pautiwlaus Iveloro Metal Nylon sales volume 113,000 202000 313.600 113 11.5 unit selling price 1146960/303,000 219,100 sale value Vanable cost funits x cost hit) 6,69,000 able cost (units x cost per 1 (79,180) (202000) (156500)/(437,600) contribution 67800 /101,000 62,600 231450 Total fixed cost

Ratio = contribution Sales 23140, 34.59% 669,000 PV Ratte 262.000 Break Even Point line = fixed cost = 262,650 34.59y. $757,468 Answer 2 (a) statement showing profit per product whous Tvelero Metal Nylon Pauk ulars Sales 146960 303080 303080219100 variable cost (79100) 202000)|(156500) contribution 67800 101000 | 62600 Attributable fixed cost (13800)|(85600) (40,600) Earnings before tax & interest $54000 $16000 $22600 I Total contribution/ Sate volume contribution per unit lol 60 62660 202600315050 67800 11330 = 0.6 3s} s 0.2 =0.5 Statement showing units BEP units Paleti ulares velcro Metal Fixed cost CA) 113850 185000 contribution per unit (B) 10.6 0.5 Nylon 40.000 0.2 23000 170.000 200.000 Break Even Point, fixed cost - contribution per unit tale units

Answer 2(b) statement showing overall profit of the company if company sells exactly the break-even quantity = Part wlars velero Metal Nylon Total Break even sale quantity | 23000 170,000 200.000 sale price 1.3 11.5 Loot 29,900 255,6001401600424900 sale value variable cost (16100) (170,880)|(160.000 (286160) contribution 13800 85.000 40,600 138800 |(262000) Total fixed cost Loss (123200) to the company