Question

# Next, you have been asked by your manager to craft an update on the company’s sales...

Next, you have been asked by your manager to craft an update on the company’s sales and fulfilment performance of your flagship product. Here is the breakdown of how your accounting department allocated the costs for the flagship product:

Variable costs:

• Packing: \$4.00 per sale

• UPS (fulfilment charge) charge per sale: \$10.00 per sale

• Sales Commission: \$10.00 per sale

• Flagship Units: \$30.00 Cost of each

Fixed Costs:

• Rent: \$125,000 per year

• \$125.00 per unit Answer the following:

1. What is the contribution margin per unit for the flagship product?

2. What is the Break-Even Volume in Units for the flagship product?

3. What is the Break-Even in dollars for the flagship product?

4. What would be the net profit if you sold 30,000 units of the flagship product?

 QUESTION 1 Contribution margin per unit of flagship product: SL.NO. PARTICULARS AMOUNT (\$) 1 Selling Price 125 2 (-) Variable Costs Packing -4 UPS Charge per sale -10 Sales commission -10 Flagship units cost/unit -30 3 Contribution per Unit 71 4 Contribution Margin per Unit-(3/1)*100 57% QUESTION 2 Break-Even Volume in Units for the flagship product: SL.NO. PARTICULARS AMOUNT (\$) 1 Selling Price 125 2 (-) Variable Costs a. Packing -4 b. UPS Charge per sale -10 c. Sales commission -10 d. Flagship units cost/unit -30 3 Contribution per Unit 71 4 Fixed Costs a. Rent 125000 b. Overhead 700000 Total Fixed Costs 825000 5 Break Even Volume in Units - (4/3) i.e. 825000/71 11619.72 QUESTION 3 Break-Even in dollars for the flagship product: SL.NO. PARTICULARS AMOUNT (\$) 1 Selling Price 125 2 (-) Variable Costs a. Packing -4 b. UPS Charge per sale -10 c. Sales commission -10 d. Flagship units cost/unit -30 3 Contribution per Unit 71 4 Contribution earned from sale of 11620 units for BEP as per Question 2 825000 5 Fixed Costs a. Rent 125000 b. Overhead 700000 Total Fixed Costs 825000 6 Break Even Volume in dollars - (4-5) i.e. 825000-825000 0.00 NOTE: The units of sale has not been rounded so as to get a perfect zero as a break even point. QUESTION 4 Net profit if you sold 30,000 units of the flagship product SL.NO. PARTICULARS AMOUNT (\$) 1 Selling Price 125 2 (-) Variable Costs a. Packing -4 b. UPS Charge per sale -10 c. Sales commission -10 d. Flagship units cost/unit -30 3 Contribution per Unit 71 4 Contribution earned from sale of 30000 units - 30000units*\$71 2130000 5 Fixed Costs a. Rent 125000 b. Overhead 700000 Total Fixed Costs 825000 6 Break Even Volume in dollars - (4-5) i.e. 2130000-825000 1305000.00

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