Question

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.)

Answer 1

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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