4 Neptune Company produces toys and other items for use in beach and resort area

Question

4 Neptune Company produces toys and other items for use in beach and resort areas. A smal, inflatable toy has come onto that the company is produce 16,000 units of the associated with the toy would total $35,000 per month. anxious to produce and sell. The new toy will sell for $3 per unit. Enough capacity exists in the company's plant to toy each month. Variable expenses to manufacture and sell one unit would be $1.25, and fixed expenses The company's Marketing Department predicts that demand for the new toy will exceed the 16,000 units that the company is able to produce. Additional manufacturing space can be rented from another company at a fixed expense of $1,000 per month. Variable expenses in the rented facility would total $1.40 per unit, due to somewhat less efficient operations than in the main plant. Required 1. What is the monthly break-even point for the new toy in unit sales and dollar sales. 2. How many units must be sold each month to attain a target profit of $12,000 per month? 3. If the sales manager receives a bonus of 10 cents for each unit sold in excess of the break-even point, how many units must be sold each month to attain a target profit that equals a 25% return on the monthly investment in fixed expenses? (For all requirements, do not round intermediate calculations.) units units

Explanation / Answer

Selling price per unit = 3

Output = 16000 units

variable cost per unit = 1.25

fixed cost = 35000 per month

additional fixed cost if co, produces more than 16000 units = 1000

variable expenses if co, produces more than 16000 units = 1.40

for the first 16000 new toys contribution would be = (3-1.25)*16000

= 28000

and the rest fixed cost would be covered by additional co. of which contribution would be = (3 - 1.40)

= 1.60

remaining fixed cost to cover = 8000 which would be cover by selling of = 8000/1.60 = 5000 units

so Break even unit = 16000+5000 =21000 units

(b) Break even point in dollar sales = 21000*3

= 63000

2. units sales needed to attain target profit of 12000

as we know that fixed cost of 36000 would cover by sales of 5000 units in new plant so additinal $ 12000 would earn by = 12000/1.6 = 7500 units

so for earning 12000 profit total units sold = 16000+5000+7500

= 28500 units

3. Total Fixed expenses = 35000+1000 = 36000

Bonus(variable cost) = $ 0.10

target profit = 25% of fixed expenses = 36000*25% = 9000

now selling price = 3

new variable cost for 1st plant = 1.25+.10 =1.35

new variable cost for additional unit = 1.4 + .10 = 1.50

Contribution per unit for 1st plant = 3 - 1.35 = 1.65

Contribution per unit for additinal plant = 3 - 1.50 = 1.50

upto 16000 units = 16000*1.65 = 26400

and remaining cost to earn from additinal plant = fixed cost + target profit - 26400

= 36000+9000-26400

= 18600

now unit sold to earn same amt.(18600) = 18600 / 1.5

= 12400 units

so total units sold = 16000+12400

= 28400 units

In case of further clarification required please comment.

In case of any query please comment.

1 Break even point in unit sales 21000 units Break even point in Dollar sales $63,000 2 unit sales needed to attain target profit 28500 units 3 unit sales needed to attain target profit 28400 units

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