Novelties, Inc produces and sells highly faddish products directed towards the p

Question

Novelties, Inc produces and sells highly faddish products directed towards the preteen market. A new product has come onto the market that the company is anxious to produce and sell. Enough capacity exists in the company's plant to produce 30,600 units each month. Variable expenses to manufacture and sell one unit would be $1.90, and fixed expenses would total $49,990 per month.

The marketing department predicts that demand for the product will exceed the 30,600 units that the company is able to produce. Additional production capacity can be rented from another company at a fixed expense of $2,500 per month. Variable expenses in the rented facility would total $2.10 per unit, due to somewhat less efficient operations than in the main plant. The product would sell for $3.00 per unit.


1. Compute the monthly break-even point for the new product in units ad in total dollar sales.
Break even point in unit sales=______
Break-even point in dollar sales=____



2. How many units must be sold each month to make a monthly profit of $11,610?
Total units to be sold=______



If the sales manager receives a bonus of 20 cents for each unit sold in excess of the break-even point, how many units must be sold each month to earn a return of 29% on the monthly investment in fixed expenses?
Total units to be sold=_______

Explanation / Answer

total expense/month = $49,990 + 30,600x1.9 = 108,130 for new facilty = A units total expenseA/month = $2,500 + 2.1A total SP = (30600+A)x3 1. breakeven (30600+A)x3= 108,130+ $2,500 + 2.1A A = 20,922 Units for breakeven company nned to produce 20,923 Units + 30,600 = 51523 2. to make a monthly profit of $11,610 (30600+A)x3 - 108,130+ $2,500 + 2.1A = 11610 solve for A 3. profit = 29% of 49990+2500 = 15222 Calculate A (30600)x3 + 2.8A - 108,130+ $2,500 + 2.1A = 15222 use SP = 2.8 instead of 3 after breakeven Please rate

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