During the third year of operations, Memories, Inc. estimates that 415,000 figur
ID: 2451524 • Letter: D
Question
During the third year of operations, Memories, Inc. estimates that 415,000 figurines (385,000 dolls and 30,000 replicas) will be produced. Direct material costs per unit remain at $.74 per doll and $.62 per replica. Direct labor costs are $2.51 per doll and $2.78 per replica. Monthly fixed selling and administrative costs are $15,300 while monthly fixed manufacturing overhead is $2,851. The variable overhead cost is $.55 per figurine. Sales price for the replicas is $5.25 each and the sales price for the dolls is $5.00 each. Required: (For each independent question, refer to the original information above.)
A. Compute the break-even point in Year 3 for the figurines. How many dolls and how many replicas must be sold to break-even?
B. What options does MI have to reduce the break-even point? Discuss both the quantitative and qualitative factors that must be considered with each option.
C. How many dolls and replicas, respectively, would MI need to sell in Year 3 to earn a before-tax profit of $150,000?
D. If its tax rate is 30 percent, how many figurines does MI need to sell in Year 3 to earn an after-tax profit of $150,000?
E. How will the break-even point change if the sales mix changes to 80 percent dolls and 20 percent replicas?
F. What would happen to the break-even point if labor costs increased by 10 percent for each type of figurine?
G. What would happen to the break-even point if MI increased the sales price of replicas to $5.50 and dolls to $5.25?
Explanation / Answer
Solution:
(A). Break-Even Point:
Dalls:
Break-Even Point =
Fixed Expencess:
Mfg Fixed Costs $ 2,851
Selling and Distri $ 15,300
Total = 18,151
(1). Contribution Margin Per Unit:
Dolls CMPU = $ 5 - $ 0.55
= $ 4.45
Replicas CMPU = $ 5.25 - $ 0.55
= $ 4.7
Break-Even Point:
Dolls Break-Even Point = 18,151 / 4.45
= 4,078.88 (or) 4,079
Replicas Break-Even Point = $ 18,151 / 4.7
= 3,861.91 (or) 3,862
(C). Dolls Sales = 4,079 * 5 = 20,395
Replicas Sales = 3,862 * 5.25 = 20,276
(1) P.V Ratio:
P.V Ratio =
Dolls Contribution = 4,079 * 4.45 = 18,151
Replicas Contribution = 3,862 * 4.7 = 18,151
Dolls P.V Ratio = 18,151 / 20,395 * 100
= 88.9 %
Replicas P.V Ratio = 18,151 / 20,276 * 100
= 89.5 %
(C). How Many Sales Whould :-
When Sales Earn a Profit of 1,50,000:
Dolls Contribution = Sales * P.V Ratio / 100
= 1,50,000 * 88.9 / 100
= 1,33,350
Profit = Fixed Cost - Contribution
= 1,33,350 - 18,151
= 1,15,199
Replicas Contribution = Sales * P.V Ratio / 100
= 1,50,000 * 89.5 / 100
= 1,34,250
Profit = Contribution - Fixed Cost
= 1,34,250 - 18,151
= 1,16,099
(D). After Tax 30% :
Sales 1,50,000 * 30 / 100
= 45,000
= 1,50,000 - 45,000
= 1,05,000
(E). If Sales Mix Dolls 80% and Replicas 20%
Dolls 3263
Replicas 772.4
Sales = 4035
(F). If the Labour Cost Increased 10%
Automatically Our Variable Costs are Incrased. Therefore Break Point Also Willbe Decreased.
(G). If Sales Price Increase Dolls 5 to 5.25 and Replicas 5.25 to 5.50:
Automatically Selling Units are Decreased So therefore B.E.P Valme also decrease
Break-Even Point = Fixed Cost / Contribution Margin Per UnitRelated Questions
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