Jordan and Taylor are beginning to understand break-even analysis. Selling price
ID: 2337975 • Letter: J
Question
Jordan and Taylor are beginning to understand break-even analysis.
Selling price to Yumminess at $10 per tin. The cost is $8 per tin, which includes $6 of direct material and $1.50 of direct labor. Annual manufacturing overhead is estimated at $100,000 for the expected sales of 200,000 tins. Operating expenses are projected to be $80,000 annually.
After looking over the costs for manufacturing overhead and operating expenses, you approximate that 85% of manufacturing overhead and 20% of operating expenses are variable costs.They are now discussing options with adjustments to costs and sales. As long as they keep bringing brownies, you keep turning out numbers.
1. Jordan and Taylor are considering an advertising campaign for $40,000 annually. They expect this to increase sales by 5%. What would be the new net income? (5 points)
2. Yumminess wants to feature Chocolate Attack Brownies as a monthly special. The predicted sales volume is 50,000 tins. Yumminess wants Jordan and Taylor to cut their selling pricing by 10%, citing that the volume will more than make up the difference. What will be the break-even point in tins during this sale? (5 points)
3. Yumminess wants to feature Chocolate Attack Brownies as a monthly special. The predicted sales volume is 50,000 tins. Yumminess wants Jordan and Taylor to cut their selling pricing by 10%, citing that the volume will more than make up the difference. What net income can Jordan and Taylor expect during this offer? (5 points)
Explanation / Answer
Formula sheet
A B C D E F G 2 3 Selling Price $10 per tin 4 Expected Sales Units 200000 tins 5 Costs per unit are as follows: 6 7 Direct Materials $6.00 8 Direct Labor $1.50 9 Manufacturing Overhead $0.50 10 Total $8.00 =SUM(D7:D9) 11 12 Operating Expense $80,000 13 Total Manufacturing Overhead $100,000 14 Variable Manufacturing Overhead 85% of manufacturing overhead 15 Variable operating expenses 20% of operating expenses 16 17 Fixed manufacturing overhead $15,000.00 18 Fixed Operating Expense $64,000.00 19 Total Fixed cost $79,000.00 =SUM(D17:D18) 20 21 Variable Costs Per unit can be calculated as follows: 22 Direct Materials $6.00 23 Direct Labor $1.50 24 Manufacturing Overhead $0.43 =D9*D14 25 Operating Expenses $0.08 =(D12/D4)*D15 26 Total $8.01 =SUM(D22:D25) 27 28 1) 29 Initial Sales Units 200000 tins 30 Increase in Sales 5% 31 New Sales Units 210000 tins 32 33 Net income can be calculated as follows: 34 Revenue $2,100,000.00 35 Variable costs $1,681,050.00 36 Contribution margin $418,950.00 37 Fixed Costs: 38 Manufacturing Overhead $15,000.00 39 Operating Expenses $64,000.00 40 Advertising Cost $40,000.00 41 Total Fixed cost $119,000.00 42 Net Income $299,950.00 43 44 Hence net income is $299,950.00 45 46 2) 47 48 Initial Sales Price $10.00 per tin 49 Decrease in Sales Price 10% 50 New Sales Price $9.00 per tin 51 52 Calculation of contribution margin per unit: 53 Price of the product $9.00 54 Variable cost of the product $8.01 55 Contribution margin per unit =Price of the product-Variable cost per unit 56 $1.00 =D53-D54 57 58 Hence contribution margin per unit $1.00 59 60 61 Calculation of breakeven unit: 62 Fixed Cost $79,000 63 contribution margin per unit $1.00 64 65 Break-even Units =Fixed Costs/Contribution margin per unit 66 79397 =D62/D63 67 68 Hence breakeven units is 79397 69 70 3) 71 Additional Sales units 50000 72 Total Sales Units 250000 =D4+D71 73 74 Net income can be calculated as follows: 75 Revenue $2,250,000.00 76 Variable costs $2,001,250.00 77 Contribution margin $248,750.00 78 Fixed Costs: 79 Manufacturing Overhead $15,000.00 80 Operating Expenses $64,000.00 82 Total Fixed cost $79,000.00 83 Net Income $169,750.00 84 85 Hence net income is $169,750.00 86Related Questions
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