Question

# Neptune Company produces toys and other items for use in beach and resort areas. A small,...

 Neptune Company produces toys and other items for use in beach and resort areas. A small, inflatable toy has come onto the market that the company is anxious to produce and sell. The new toy will sell for \$3.00 per unit. Enough capacity exists in the company’s plant to produce 30,500 units of the toy each month. Variable expenses to manufacture and sell one unit would be \$1.90, and fixed expenses associated with the toy would total \$49,825 per month.
 The company's Marketing Department predicts that demand for the new toy will exceed the 30,500 units that the company is able to produce. Additional manufacturing space can be rented from another company at a fixed expense of \$2,491 per month. Variable expenses in the rented facility would total \$2.10 per unit, due to somewhat less efficient operations than in the main plant.

 Required:
 1. Compute the monthly break-even point for the new toy in unit sales and in dollar sales. (Round "per unit" to 2 decimal places, intermediate and final answers to the nearest whole number.)

 2. How many units must be sold each month to make a monthly profit of \$11,160? (Round "per unit" to 2 decimal places, intermediate and final answer to the nearest whole number.)

 3 If the sales manager receives a bonus of 25 cents for each unit sold in excess of the break-even point, how many units must be sold each month to earn a return of 28% on the monthly investment in fixed expenses? (Round "per unit" to 2 decimal places, intermediate and final answer to the nearest whole number.)

 Normal Capacity 30,500 Total Fixed Cost 49,825.00
 Normal Contribution Selling Price 3.00 Other Variable Cost 1.90 Contribution per Unit 1.10
 Contribution from Rented Space Selling Price 3.00 Other Variable Cost 2.10 Contribution per Unit 0.90

a)

 Total Contribution 33,550.00 Fixed Cost 49,825.00 Unrecovered Fixed Cost 16,275.00 Additional Fixed Cost 2,491.00 Total to be Recovered 18,766.00 Contribution Per Unit 0.9 Additional Number of Units 20,851.11 Total Breakeven Units 51,351.11 Breakeven Point in \$(*3) 154,053.33

b)

 Total Fixed Cost 49,825 Desired Profit 11,160 Total Contribution Required 60,985 Contribution at 30500 Units 33,550 Additional Contribution 27,435 Contribution per Unit 0.90 Number of Units 30,483 Total units to be Sold 60,983

c)

 New Contribution per Unit Other Variable Cost 2.10 Add: Bonus 0.25 Total Variable Cost 2.35 Selling Price 3 New Contribution per Unit 0.65
 Fixed Investment 49,825 Desired Profit(28%) 13,951 New Contribution per Unit 0.65 Number of Units 21,463 Total units to be Sold(51351+21463) 72,814

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