Production Data Direct Cost Total Wood Materials Foam Chem A Chem B Chem C Flame

Question

Production Data
Direct Cost Total Wood Materials Foam Chem A Chem B Chem C
Flame Retardent (per liter) 10.00 1.50 0.50
Coating (per liter) 25.00 7.50 2.50 15.00
Mid-Grade (per unit) 140.00 80.00 40.00 20.00
High-End (per unit) 250.00 160.00 60.00 30.00
Alternative Coating (per liter) 27.50
Market Price of Flame Retardent (per liter) 10.00
Liters of Flame retardent per year 62
Liters of Coating per year 310
Plant Capacity
Flame Retardent 186
Coating 465
Mid-Grade 5,170
High-End 1,034
Set up info

Setup Information
XXXXX XXndquist 0.08
Peso? (1=Yes) 0 1.00 10.814 Mexican Pesos = 1.000 US Dollars
Income Information-Current Standards
Current Hi-Tech Broker
Production Current Production = Sales Forecast
Mid-Grade 2,585.00 3,878.00 3,878.00 Production can be increased by 50% and the broker also anticipates that same level
High-End 517.00 776.00 776.00 Production can be increased by 50%
Direct Materials ($)/Unit
Mid-Grade 140.00 140.00 There are no material costs for brokered units
High-End 250.00 250.00 250.00
Direct Labor ($/HR)/Unit 15.00 40.00 40.00 The labor rate is increased due to the technical skill level of operators
Labor Time (Hrs)/Unit
Mid-Grade 20.00 4.00 There are no labor times for brokered units and production times are 20% of original times
High-End 30.00 4.00 4.00 Production times are now equal to the mid-grade level
Direct Cost/Unit
Mid-Grade 440.00 300.00 360.00 The Broker cost for Mid-Grade is based on net FOB destination including shipping/tariffs
High-End 700.00 410.00 410.00
Price/Unit
Mid-Grade 509.00 459.00 459.00 Prices are reduced by 10% because supply is increased
High-End 879.00 789.00 789.00 Prices are reduced by 10% because supply is increased
Plant Overhead/Yr
Salaries 50,000 95,000 95,000 Need to add a 45,000 a year maintenance position for the equipment
Utilities 9,000 27,000 4,502 Utilities are expected to be 3 x's current at full production (150% above current levels) based on units produced
Benefits 105,815 83,964 21,916 Benefits are 10% of all wages (including direct labor)
Insurance 3,000 15,000 15,000 Insurance will increase by 12,000 with the addition of the equipment and building expansion
Property Taxes 975 3,900 3,900 Property taxes are 6.5%, assessment is 1% of original value, and that is on all plant/equipment
Depreciation 50,000 466,667 466,667 Buildings are at 30 years and Equipment is at 10 years, straight line
Supplies 6,000 6,000 6,000 Supply expense is miscellaneous and does not vary
Income Tax Expense 19,370 89,534 27,317 Taxes are 42% of Net Income
270,908 910,706 678,026 Net Margins
224,790 697,531 612,985 Overhead
46,118 213,175 65,041 Net Income before taxes



With the above information I am to provide a break even analysis, using the current information for the furniture store and then consider the alternative of selling the flame retardant separately, I know the formula for a break even point, but I am not sure what numbers to use above.

Explanation / Answer

Income Information-Current Standards Current Hi-Tech Broker Production Current Production = Sales Forecast Mid-Grade 2,585.00 3,878.00 3,878.00 Production can be increased by 50% and the broker also anticipates that same level High-End 517.00 776.00 776.00 Production can be increased by 50% Direct Materials ($)/Unit Mid-Grade 140.00 140.00 There are no material costs for brokered units High-End 250.00 250.00 250.00 Direct Labor ($/HR)/Unit 15.00 4

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