Question

Hurjee Company manufactures and sells a single product. The company manufactured 15,000 units in 2017 and its partial financial for the year 2017 were as follows:

Required:

Sales 450000
Direct material 70000
Direct labour 50000
Factory overhead (variable) 30000

Sales commissions 15000
Sales delivery expenses 15000

Salaries of managers 150000
Salaries of factory supervisors 16000

Advertising expense 50000

a) What is the annual break?even point in units and in sales dollars?

b) How many units would have to be sold annually to earn a target profit of $75,000?

c) What is the company’s CM ratio if sales increases by $50,000 per year and there is no change in fixed expenses, by how much would you expect annual net operating income to increase?

d) Refer to the original data. The manager wants to increase the sales commission by $1 per unit. He thinks that this move, combined with some increase in advertising, would increase annual sales by 50%. By how much could advertising be increased if company wants to earn a target profit of $90,000?

Answer 1