Question

Breed Products has performed extensive studies on its costs and production and estimates the following annual costs based on 154,000 units (produced and sold):

	Total Annual Costs (154,000 units)
Direct material	$	291,000
Direct labor		261,000
Manufacturing overhead		207,000
Selling, general, and administrative		132,000
Total	$	891,000

Required:

a. Compute Breed’s unit selling price that will yield a profit of $448,800, given sales of 154,000 units. (Round your answer to 2 decimal places.)

b. Compute Breed’s dollar sales that will yield a projected 28 percent profit on sales, assuming variable costs per unit are 53 percent of the selling price per unit and fixed costs are $393,300.

c. Management believes that a selling price of $7.90 per unit is reasonable given current market conditions. How many units must Breed sell to generate the revenues (dollar sales) determined in requirement (b)? (Round your final answer to nearest whole unit.)

Answer 1

Given:
Units Sold	154000
Direct Material	291000
Direct Labor	261000
Manuf. o/h	207000
Selling, General , Admin Exp.	132000
Total Costs	891000
a) Calculation of Unis Selling Price to Yield Profit of 448800
Profit = Sales - Costs
Let the No. of Units X
So, putting figures in this formula we have
448800=154000*X-891000
8.7 Per Unit
b) Calucation of Dollar sales to attain Target Profit
Dollar Sales=(Target Profit+Fixed Expenses)/Contribution Ratio
Let Dollar Sales	X
Variable Cost	.53X
Contribution Ratio	47%
Target Profit	.28 X
So, putting figures in this formula we have Targe Profit	2070000
=(.28X+393300)/47%
C) Calculation of Units sales to have sales of 2070000
Selling Price	7.9
Dollar Sales in required in solution b	2070000
Units to be sold	262026