Jordan and Taylor are beginning to understand break-even analysis Selling price
ID: 2341606 • 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 costsExplanation / Answer
1. New Net Income if Advertisement campaigns are considered
New Net Income = Sales – Variable Cost – Variable Operating Cost – Fixed Operating cost – Variable Manufacturing cost – Fixed Manufacturing Cost – Advertising Cost
New Net Income = 200000 * 1.05 * 10 – 200000 * 1.05 * 7.5 – 80000 * 20% * 1.05 – 80000 * 80% - 100000 * 85% * 1.05 – 100000 * 15% - 40000
New Net Income = 2100000 – 1575000 – 16800 – 64000 - 89250 – 15000 - 40000
New Net Income = $299950
2. Break Even Point = Fixed Cost / Contribution Margin
Break Even Point = (64000 + 15000) / (9 – 7.5 – 0.425 – 0.08)
Break Even Point = 79397 Units
3. New Net Income if Price is reduced
New Net Income = Sales – Variable Cost – Variable Operating Cost – Fixed Operating cost – Variable Manufacturing cost – Fixed Manufacturing Cost – Advertising Cost
New Net Income = 250000 * 9 – 250000 * 7.5 – 80000 * 20% * 1.25 – 80000 * 80% - 100000 * 85% * 1.25 – 100000 * 15%
New Net Income = 2250000 – 1875000 – 20000 – 64000 – 106250 – 15000
New Net Income = $169750
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