Toy Town manufactures small toys for toddlers. Sales last year were 30.000 toys
ID: 2415850 • Letter: T
Question
Toy Town manufactures small toys for toddlers. Sales last year were 30.000 toys at $27.50 each. Expenses amounted to $530,000. Of this amount. $164,000 was considered to be fixed. The company wants to enhance its product by upgrading a component that has a cost of $3.00 with one that will cost $5.00. A new machine will be required to increase plant capacity and will cost $15,000, with a useful life of five years and no salvage value. The company uses straight-line depreciation on all plant assets. Calculate the current break-even point in units Calculate the number of units that would need to be sold in order to earn a profit of $150,000 If Management holds the sales price constant and makes the suggested changes, how may units must be sold in the coming year to breakeven? If Management holds the sales price constant and makes the suggested changes, how many units must be sold in the coming year to earn the same net income as last year"? If Toy Town wishes to maintain the same contribution margin ratio what selling price per unit of product must it charge next year to cover the increased direct material cost?Explanation / Answer
1
Calculation of Current Break Even Point in Units :
Sales Price Per Unit
$ 27.50
Less : Variable Cost per unit (530000-164000) / 30000 =
$ (12.20)
Contribution Margin Per Unit= (A)
$ 15.30
Total Fixed Cost = (B)
$ 164,000.00
Current Break Even Point in Units = B/A =
10,719
2
Calculation of Number of units to be sold to earn $150000 Profit :
Total Fixed Cost
$ 164,000.00
Add: Desired Profit
$ 150,000.00
Total (A)
$ 314,000.00
Contribution Margin Per Unit= (B)
$ 15.30
Number of units to be sold to earn $150000 Profit = A/B=
20,523
3
Calculation of Proposed Break Even Point in Units :
Sales Price Per Unit
$ 27.50
Less : Variable Cost per unit = 12.20 + (5-3) =
$ 14.20
Contribution Margin Per Unit= (A)
$ 41.70
Total Fixed Cost = 164000+(15000/5) =(B)
$ 167,000.00
Proposed Break Even Point in Units = B/A =
4,005
4
Calculation of Number of units to be sold to earn $150000 Profit :
Total Fixed Cost
$ 167,000.00
Add: Desired Profit
$ 150,000.00
Total (A)
$ 317,000.00
Contribution Margin Per Unit= (B)
$ 41.70
Number of units to be sold to earn $150000 Profit = A/B=
7,602
1
Calculation of Current Break Even Point in Units :
Sales Price Per Unit
$ 27.50
Less : Variable Cost per unit (530000-164000) / 30000 =
$ (12.20)
Contribution Margin Per Unit= (A)
$ 15.30
Total Fixed Cost = (B)
$ 164,000.00
Current Break Even Point in Units = B/A =
10,719
2
Calculation of Number of units to be sold to earn $150000 Profit :
Total Fixed Cost
$ 164,000.00
Add: Desired Profit
$ 150,000.00
Total (A)
$ 314,000.00
Contribution Margin Per Unit= (B)
$ 15.30
Number of units to be sold to earn $150000 Profit = A/B=
20,523
3
Calculation of Proposed Break Even Point in Units :
Sales Price Per Unit
$ 27.50
Less : Variable Cost per unit = 12.20 + (5-3) =
$ 14.20
Contribution Margin Per Unit= (A)
$ 41.70
Total Fixed Cost = 164000+(15000/5) =(B)
$ 167,000.00
Proposed Break Even Point in Units = B/A =
4,005
4
Calculation of Number of units to be sold to earn $150000 Profit :
Total Fixed Cost
$ 167,000.00
Add: Desired Profit
$ 150,000.00
Total (A)
$ 317,000.00
Contribution Margin Per Unit= (B)
$ 41.70
Number of units to be sold to earn $150000 Profit = A/B=
7,602
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