Toy Box, Inc., is contemplating expanding sales of their children’s toys. The ha

Question

Toy Box, Inc., is contemplating expanding sales of their children’s toys. The have an opportunity to stock and sell the X toy that has been a big hit with children everywhere. They must order the X toys from the manufacturer in a minimum order of 100 at a cost of $12 each. They could resell the X toy in their store for $22 each. Due to anticipated demand, Toy Box, Inc., will need to hire an additional part-time cashier at $600 a month, which will be classified as a fixed-cost attributable to the X toy. In addition, they have offered a $1 sales commission per toy to their floor sales representative. Finally, they will include a package of trading cards with every purchase of an X toy, which will cost them an additional $2 each. Instructions: In a well-written paper, answer the questions and perform the calculations described below: 1.To make the project worthwhile, Toy Box, Inc., would require a $5,000 profit per month. What level of sales, in units and in dollars, would be required to reach this target profit? Show all computations completely, in a table inserted into your document. 2.Assume that the venture is undertaken and an order is placed for 100 X toys. What would be Toy Box’s break-even point in units and in sales dollars? Show computations completely in an inserted table, and explain the reasoning behind your answer. You can ignore the fixed cost of $600 for this part.

Explanation / Answer

Solution.

1.Calculation of required Sales in Unit and in Dollars for profit of $5,000 per month:

2,100 / 100

=21

21/100 X 100

=21

Desired Sales in Unit = ( Fixed Cost + Desired Profit ) / Contribution Margin Per Unit

= ( 600 + 5,000 ) / 21

= 5,600 / 21

= 267

Desired Sales in $ = ( Fixed Cost + Desired Profit ) / Contribution Margin ratio

= ( 600 + 5,000 ) / 21

= 5,600 / 21

= $267

2. Calculation of Toy Box’s break-even point in units and in sales dollars when venture is undertaken and an order is placed for 100 X toys :

Break Even point in units = Fixed Cost / Contribution Margin per unit

= 600 / 21

= 29

Break Even point in $ = Fixed Cost / Contribution Margin ratio

= 600 / 21

= $29

Particular Amount Sales ( 100 X $22 ) 2,200 Less : Variable Cost ( 100 X $1 ) ( 100 ) Contribution in $ 2,100 Contribution margin per Unit ( Contribution in $ / Sales in unit )

2,100 / 100

=21

Contribution Margin ratio ( Contribution in unit / Sales in units ) X 100

21/100 X 100

=21

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