Question

. Two Companies are expected to have annual sales of 1 million decks of playing cards...

. Two Companies are expected to have annual sales of 1 million decks of playing cards for next year. Estimates for the next year are as follows: Company 1 Company 2 Selling price $3.00 $3.00 Cost of materials (variable) .75 .80 Labor per Deck (variable) .75 1.25 Variable overhead per deck (variable) .30 .35 Fixed Costs $960,000 $252,000 Required: a. Compute the breakeven point for each Company; b. Which Company, based on your above answer, reaches breakeven soonest? c. Assume Company 2 changes its variable cost per deck to $1.20 for materials, its fixed costs to $195,000, all other costs remaining the same. Assume it increases its sales price to $4.00. If it then sells 129,000 decks of cards, what will its profit/loss be?

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Answer #1

Answer for a)

Contribution per unit:Selling price-variable cost of material-labour variable costs-Variable overhead cosrs

Of company 1:$3.00-$0.75-$0.75-$0.30=$1.20

Of company 2:$3.00-$0.80-$1.25-$0.35=$0.60

Break even point:Fixed costs/contribution per unit

For company 1:$960000/$1.20=800000 units

For company 2=$252000/$0.20=420000 units

Answer for b)

Company 2 reaches break even soon as they need to sell only 420000 units which is even higher quantity for company 2.

Answer for 3)

Profit or loss after adjustmenst as 129000 decks:

(No. Of units sold×contribution per unit)- fixed Costs

=[129000units×($4.00-$1.20-$1.25-$0.35)]-$195000

=($40200) loss.

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