3. Marino Company is considering adding a new product. The following estimates a
ID: 2473788 • Letter: 3
Question
3. Marino Company is considering adding a new product. The following estimates are the additional costs that would be incurred if Marino decided to produce this new product:
Marino Company
New Product Analysis
per unit
5,000
8,000
11,000
Sales
484,000
Variable expenses:
Manufacturing cost
336,000
Sales commission
40,000
Total variable expense
376,000
Fixed Expenses:
Manufacturing costs
49,000
Administrative costs
32,000
Total fixed expense
81,000
Total expenses
457,000
Net Income
27,000
a. Use the information you have to complete the information that should be in the blue cells. Calculate the breakeven point on the new product. What decision rule does the breakeven point give to Marino Company? Graph your answer using Excel if possible. If you are not Excel savvy, please either skip the graph or draw one by hand and submit a photo from your cell phone. b. You are the boss, would you approve this new product as currently proposed and costed or would you ask for changes? If so, which ones.
Marino Company
New Product Analysis
per unit
5,000
8,000
11,000
Sales
484,000
Variable expenses:
Manufacturing cost
336,000
Sales commission
40,000
Total variable expense
376,000
Fixed Expenses:
Manufacturing costs
49,000
Administrative costs
32,000
Total fixed expense
81,000
Total expenses
457,000
Net Income
27,000
Explanation / Answer
Break even point = (Fixed cost / Contribution per unit) X selling price
Total fixed expense = $ 81,000
Selling price per unit = $ 484,000 / 8000
Selling price per unit = $ 60.50
Contribution per unit = selling price - variable cost per unit
variable cost per unit = 376,000 / 8000
variable cost per unit = $ 47
Contribution per unit = selling price - variable cost
Contribution per unit = $ 60.50 - $ 47
Contribution per unit = $ 13.50
Contribution per unit = $ 13.50
Break Even point = ( $ 81,000 / $ 13.50 ) X $ 60.50
Break Even point in sales = $ 363,000
Using the break even point it can be said that the total variable expenses is very high when compared to the sales revenue . Therefore under the proposed cost system it is not viable for Marino company to consider adding a new product. The changes that would be essential is to reduce the total variable expenses so that the product becomes viable .
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