Garden Marbles manufactures birdbaths, statues and other decorative items, which
ID: 2497672 • Letter: G
Question
Garden Marbles manufactures birdbaths, statues and other decorative items, which it sells to florists and retail home and garden centers. Its design department has proposed a new product, a frog statue that it believes will be popular with home gardeners. Expected variable unit costs are direct materials, $9.25; direct labor, $4.00; production supplies $0.55; selling costs, $2.40; and other variable costs are $3.05. The following are fixed costs: depreciation, $33,000; advertising, $40,000, and other, $6,000. Management plans to sell the product for $29.25. 1. Using the contribution margin approach, compute the number of statues the company must sell to (a) break even and (b) earn a profit of $50,000. Show and label your computations.
2. Using the same data, compute the number of statues that must be sold to earn a profit of $70,000 if advertising costs rise by $20,000. Show and label your computations.
3. Using the original data and sales of 15,000 units, compute the selling price the company must charge to make a profit of $101,000. Show and label your computations.
4. According to the vice president of marketing, if the price of the statues is reduced and advertising is increased, the most optimistic annual sales estimate is 25,000 units.
How much more can be spent on fixed advertising costs if the selling price is reduced to $28.00 per statue, the variable costs cannot be reduced, and the targeted profit for sales of 25,000 statues is $120,000. Explain your analysis.
Explanation / Answer
1)
a) Break Even
Total Fixed Cost = depreciation + advertising + other
Total Fixed Cost = 33000 + 40000+ 6000
Total Fixed Cost = 79000
variable unit costs = direct materials + direct labor, + production supplies + selling costs + other variable costs
variable unit costs = 9.25 + 4 + 0.55 + 2.40+ 3.05
variable unit costs = 19.25
selling price per unit = 29.25
Number of statues the company must sell to break even = Fixed Cost / ( sale price per unit - variable cost per unit)
Number of statues the company must sell to break even = 79000/(29.25-19.25)
Number of statues the company must sell to break even = 7900 Units
b) earn a profit of $50,000
Total Fixed Cost = depreciation + advertising + other
Total Fixed Cost = 33000 + 40000+ 6000
Total Fixed Cost = 79000
variable unit costs = direct materials + direct labor, + production supplies + selling costs + other variable costs
variable unit costs = 9.25 + 4 + 0.55 + 2.40+ 3.05
variable unit costs = 19.25
selling price per unit = 29.25
Number of statues the company must sell toearn a profit of $50,000 = (Fixed Cost+Target Profit) / ( sale price per unit - variable cost per unit)
Number of statues the company must sell to earn a profit of $50,000 = (79000+50000)/(29.25-19.25)
Number of statues the company must sell to earn a profit of $50,000 = 12900 Units
2)
Total Fixed Cost = depreciation + advertising + other
Total Fixed Cost = 33000 + (40000+20000)+ 6000
Total Fixed Cost = 99000
variable unit costs = direct materials + direct labor, + production supplies + selling costs + other variable costs
variable unit costs = 9.25 + 4 + 0.55 + 2.40+ 3.05
variable unit costs = 19.25
selling price per unit = 29.25
Number of statues the company must sell toearn a profit of $70,000 = (Fixed Cost+Target Profit) / ( sale price per unit - variable cost per unit)
Number of statues the company must sell to earn a profit of $70,000 = (99000+70000)/(29.25-19.25)
Number of statues the company must sell to earn a profit of $70,000 = 16900 Units
3)
Total Fixed Cost = depreciation + advertising + other
Total Fixed Cost = 33000 + 40000+ 6000
Total Fixed Cost = 79000
variable unit costs = direct materials + direct labor, + production supplies + selling costs + other variable costs
variable unit costs = 9.25 + 4 + 0.55 + 2.40+ 3.05
variable unit costs = 19.25
selling price per unit = ?
Number of statues the company must sell toearn a profit of $101,000 = 15000
Number of statues the company must sell toearn a profit of $101,000 = (Fixed Cost+Target Profit) / ( sale price per unit - variable cost per unit)
15000 = (79000+101000)/( sale price per unit-19.25)
sale price per unit = 180000/15000 + 19.25
sale price per unit = 31.25
4)
Total Fixed Cost = depreciation + advertising + other
Total Fixed Cost = 33000 + 40000+ 6000
Total Fixed Cost = 79000
variable unit costs = direct materials + direct labor, + production supplies + selling costs + other variable costs
variable unit costs = 9.25 + 4 + 0.55 + 2.40+ 3.05
variable unit costs = 19.25
selling price per unit = 28
At this 25000 Level , Current Fixed cost we get
Profit = (selling price per unit - variable unit costs)*No of Unit - Current Fixed cost
Profit = (28-19.25)*25000 - 79000
Profit = 139750
Target Profit = 120000
Amount of Fixed advertising costs more can be spent = Profit -Target Profit
Amount of Fixed advertising costs more can be spent = 139750-120000
Amount of Fixed advertising costs more can be spent = $ 19,750
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.