Question

The PowerClean Company manufactures an engine for carpet cleaners called the "Snooper." Budgeted cost and revenue data for the "Snooper" are given below, based on sales of 41,000 units.

Sales revenue	$	1,230,000
Less: Cost of goods sold		996,000
Gross margin	$	234,000
Less: Operating expenses		102,000
Income	$	132,000

Cost of goods sold consists of $707,000 of variable costs and $289,000 of fixed costs.

Operating expenses consist of $31,000 of variable costs and $71,000 of fixed costs.

Required:

Calculate the break-even point in units and sales dollars.

Calculate the safety margin (in dollars).

PowerClean received an order for 9,000 units at a price of $20. There will be no increase in fixed costs, but variable costs will be reduced by $0.40 per unit because of cheaper packaging. Determine the projected increase or decrease in profit from the order, assuming there are no opportunity costs.

Answer 1