Jess and Tay are beginning to understand break-even analysis. Selling price to Y

Question

Jess and Tay are beginning to understand break-even analysis.

Selling price to Yumminess at $10 per tin. The cost is $8 per tin, which includes $6 of direct material and $1.50 of direct labor. Annual manufacturing overhead is estimated at $100,000 for the expected sales of 200,000 tins. Operating expenses are projected to be $80,000 annually.

After looking over the costs for manufacturing overhead and operating expenses, you approximate that 85% of manufacturing overhead and 20% of operating expenses are variable costs.

They are now discussing options with adjustments to costs and sales. As long as they keep bringing brownies, you keep turning out numbers.

Jess and Tay are considering an advertising campaign for $40,000 annually. They expect this to increase sales by 5%. What would be the new break even in sales dollars?

Yumminess wants to feature Chocolate Attack Brownies as a monthly special. The predicted sales volume is 50,000 tins. Yumminess will offering a reduced selling price and they want Jess and Tay to cut their selling pricing by 10%, citing that the volume will more than make up the difference. What will be the break-even point in tins during this sale?

Yumminess wants to feature Chocolate Attack Brownies as a monthly special. The predicted sales volume is 50,000 tins. Yumminess will offering a reduced selling price and they want Jess and Tay to cut their selling pricing by 10%, citing that the volume will more than make up the difference. What net income can Jess and Tay expect during this offer?

Explanation / Answer

All Amounts in $ Fixed Variable Total Expected sales Variable cost/Unit Annual Manufacturing OH                  15,000                           85,000 100,000     200,000            0.43 Annual Operating cost                  64,000                           16,000      80,000     200,000            0.08 Sellingprice /unit                           10 Direct material /unit                       6.00 Direct labor/unit                       1.50 Current BEP Analysis sales 200,000 unitd per unit Total Sales 10                     2,000,000 Less Variable costs Direct material                             6                     1,200,000 Direct labor                       1.50                        300,000 Manufacturing OH                       0.43                           86,000 Opearting cost                       0.08                           16,000 Total Variable cost                       8.01                     1,602,000 Contribution Margin                       1.99                        398,000 Contribution Margin % 19.90% Fixed costs Annual Manufacturing OH                           15,000 Annual Operating cost                           64,000 Total Fixed costs                           79,000 Net income                        319,000 BEP Units                           39,698 BEP in $                        396,985 New BEP Analysis sales 210,000 unit per unit Total Sales 10                     2,100,000 Less Variable costs Direct material                             6                     1,260,000 Direct labor                       1.50                        315,000 Manufacturing OH                       0.43                           90,300 Opearting cost                       0.08                           16,800 Total Variable cost                       8.01                     1,682,100 Contribution Margin                       1.99                        417,900 Contribution Margin % 19.90% Fixed costs Annual Manufacturing OH                           15,000 Annual Operating cost                           64,000 Advertising                           40,000 Total Fixed costs                        119,000 Net Income                        298,900 BEP Units                           59,799 BEP in $                        597,990 Income statement with Chocolate Attack addition sales normal                200,000 Sale chocolate attack                  50,000 Total                250,000 sales 210,000 unit per unit Total Sales -normal prduct 10                     2,000,000 Sales -chocolate Attack 9                        450,000 Total sales revenue                     2,450,000 Less Variable costs Direct material                             6                     1,500,000 Direct labor                       1.50                        375,000 Manufacturing OH                       0.43                        107,500 Opearting cost                       0.08                           20,000 Total Variable cost                       8.01                     2,002,500 Contribution Margin                        447,500 Contribution Margin % 18.27% Fixed costs Annual Manufacturing OH                           15,000 Annual Operating cost                           64,000 Total Fixed costs                           79,000 Net Income                        368,500

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