Cheryl Montoya picked up the phone and called her boss, Wes Chan, the vice presi

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 conceming these products appear below: Velcro 117,000 Metal 220,000 S 1.70 1.60 1.20 S 1.00 01.10 Nylon 288,000 Normal annual sales volume Unit selling price Variable expense per unit Total fixed expenses are $267,000 per year. All three products are sold in highly competitive markets, so the company is unable to raise its prices without losing 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 overall break-even point in dollar sales? (Round CM ratio to 4 decimal places and final answer to the nearest whole dollar.) -even point in dollar sales 2. Of the total fixed expenses of $267,000, $15,260 could be avoided if the Velcro product is dropped, $87,000 if the Metal product is dropped, and $19,400 if the Nylon product is dropped. The remaining fixed expenses of $145,340 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? (Do not round intermediate calculations.) 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? (Do not round intermediate calculations.) t operating loss

Explanation / Answer

Velcro Metal Nylon Total Sales revenue 198900 352000 345600 896500 Less: Variable cost 117000 242000 316800 675800 Contribution margin 81900 110000 28800 220700 CM ratio 41.18% 31.25% 8.33% 24.62% Contribution / Revenue Overall Break even point in $: Total fixed cost / Cm ratio 267000 /24.62% = $ 1084484 Req 2-a Velcro Metal Nylon Direct Fixed expense 15260 87000 19400 CM ratio 41.18% 31.25% 8.33% Break even Sales 37056.82 278400 232893.2 Rreq 2-b: Total fixed cost 267000 Less: recovered from above sales Direct fixed cost Velcro 15260 Metal 87000 Nylon 19400 Net operating loss 145340

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