Toy Box Inc. is contemplating expanding their sales of their children%u2019s toy

Question

Toy Box Inc. is contemplating expanding their sales of their children%u2019s toys. The have an opportunity to stock and sell the X toy that has been a big hit with children everywhere. They need to order the X toys from the manufacturer in a minimum order of 100 at a cost of $12 each. They could resell the X toy in their store for $22 each.

Due to anticipated demand, Toy Box Inc. will need to hire an additional part-time cashier at $600 a month which will be classified as a fixed-cost attributable to the X toy. Also, they have offered a $1 sales commission per toy to their floor sales representative. They will also include a package of trading cards with every purchase of an X toy, which will cost them an additional $2 each.

Required:

1. To make the project worthwhile, Toy Box Inc. would require a $5,000 profit per month. What level of sales in units and in dollars would be required to reach this target profit? Show all computations.
2. Assume that the venture is undertaken and an order is placed for 100 X toys. What would be Toy Box%u2019s break-even point in units and in sales dollars? Show computations and explain the reasoning behind your answer. You can ignore the fixed cost of $600 for this part.

Toy Box Inc. is contemplating expanding their sales of their children%u2019s toys. The have an opportunity to stock and sell the X toy that has been a big hit with children everywhere. They need to order the X toys from the manufacturer in a minimum order of 100 at a cost of $12 each. They could resell the X toy in their store for $22 each.

Due to anticipated demand, Toy Box Inc. will need to hire an additional part-time cashier at $600 a month which will be classified as a fixed-cost attributable to the X toy. Also, they have offered a $1 sales commission per toy to their floor sales representative. They will also include a package of trading cards with every purchase of an X toy, which will cost them an additional $2 each.

Required:

1. To make the project worthwhile, Toy Box Inc. would require a $5,000 profit per month. What level of sales in units and in dollars would be required to reach this target profit? Show all computations.
2. Assume that the venture is undertaken and an order is placed for 100 X toys. What would be Toy Box%u2019s break-even point in units and in sales dollars? Show computations and explain the reasoning behind your answer. You can ignore the fixed cost of $600 for this part.

Explanation / Answer

Contribution per unit = 22-12-1-2 = $7 Sales in unit (to achive profit) = (5000+600)/7 = 800 unit Sales in Dollar = 800*22 = $17,600

Break Even point in units = 600/7 = 85.71 units = 86 units Break Even in sales dollar = 86*22 =$1892

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