Cut Format as Cell Table Styles- niert Delete For Font 120%! The costi ing manag
ID: 2803183 • Letter: C
Question
Cut Format as Cell Table Styles- niert Delete For Font 120%! The costi ing manager for Archaic Image Corp. asked you to forecast expected breakeven and profitability levels for its Canvas Picture Division. Although the expectation division will be profitable next year, management is afraid that competitors will cause the division to struggle to reach breakeven The costing manager sent you the following email: To: Laura SmithCPA 9, 2017 Hi Liz- Pursuant to our phone comversation, I am including the data related to our Canvas Picture Division. Last year we sold 2.500 canvas photos for an average of $200 a unit. However, our competitor- the market leader on an aggressive price war and we can no longer sell each unit for this amount. We compiled the ollowing data based on market research and our historical financials we can sell 2,500 canvas photos during 2018 at a price point of $150. . We calculated a variable cost per unit of $75 . The division incurrs $100,000 of fixed costs annually . We would like to eam at least $100,000 in profits (our targeted profit Accordingly, we would appreciate if you can analyze and provide us with the following 1) The estimated profit that the division will eam á we sell 2,500 canvas photos for $150 2) The estimated profit that the division will ean if we sell 2.000 canvas photos for $175 3) The estimated profit that the division will earn if we sell 3,000 canvas photos for $125 4) The breakeven point (in dolars and units) for the division if we sell each canvas photo for $150 5) The 6) The breakeven point (in dollars and units) for the point (in dollars and units) for the division if we sell each canvas photo for $175 division if we sell each canvas photo for $125 The sales necessary (in The sales necessary (in s) to meet the targeted profit id we sell each canvas photo for $150 to meet the targeted proft f we sell each canvas photo for $175 8) 9) The sales necessary (in dollars/units) to meet the targeted proft if we sell each canvas photo for $125 10) The margin of safety (in dollars) if we sell 2,500 canvas photos at $150 Break-Even Analysis Special Order |Outs Sell or Process Further Keep or Drop a
Explanation / Answer
Answer to Part 1:
Profit = Net Sales – Variable Expenses- Fixed Cost
Selling Price per unit = $150
Variable Cost per unit = $75
Fixed Cost = $100,000
Profit = (2,500 * $150) – (2,500 * $75) - $100,000
Profit = $375,000 - $187,500 - $100,000
Profit = $87,500
Answer to Part 2:
Profit = Net Sales – Variable Expenses- Fixed Cost
Selling Price per unit = $175
Variable Cost per unit = $75
Fixed Cost = $100,000
Profit = (2,000 * $175) – (2,000 * $75) - $100,000
Profit = $350,000 - $150,000 - $100,000
Profit = $100,000
Answer to Part 3:
Profit = Net Sales – Variable Expenses- Fixed Cost
Selling Price per unit = $125
Variable Cost per unit = $75
Fixed Cost = $100,000
Profit = (3,000 * $125) – (3,000 * $75) - $100,000
Profit = $375,000 - $225,000 - $100,000
Profit = $50,000
Answer to Part 4:
Break Even Point (In Units) = Fixed Cost / Contribution Margin per unit
Contribution Margin per unit = Selling Price per Unit – Variable Cost per Unit
Selling Price per unit = $150
Variable Cost per unit = $75
Contribution Margin per unit = $150 - $75 = $75
Break Even Point (In Units) = 100,000 / 75
Break Even Point (In Units) = 1,333.33 or 1,333 units
Break Even Point (In Dollars) = Break Even Point (In Units) * Selling Price per unit
Break Even Point (In Dollars) = 1,333 * $150
Break Even Point (In Dollars) = $199,950
Answer to Part 5:
Break Even Point (In Units) = Fixed Cost / Contribution Margin per unit
Contribution Margin per unit = Selling Price per Unit – Variable Cost per Unit
Selling Price per unit = $175
Variable Cost per unit = $75
Contribution Margin per unit = $175 - $75 = $100
Break Even Point (In Units) = 100,000 / 100
Break Even Point (In Units) = 1,000 units
Break Even Point (In Dollars) = Break Even Point (In Units) * Selling Price per unit
Break Even Point (In Dollars) = 1,000 * $175
Break Even Point (In Dollars) = $175,000
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