Homework Problem 1: BEP Analysis In this case study, regenerate the answers show
ID: 1132053 • Letter: H
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Homework Problem 1: BEP Analysis In this case study, regenerate the answers shown below under the SOLUTION section in a spreadsheet format. Also, read the interpretations and make sure you get familiar with their importance in decision making processes. Make sure to use the mathematical functions (SUM, SUMPRODUCT, IF as outlined in Chapter 2 lecture. You are the operations manager over a production line that manufactures, assembles, and packages three types of products: A, Band C. The specifications are illustrated in the following table: Specification Volume produced and sold (items) 7500 Total Variable Expenses (S) Product A Product B 4500 7.5 13950 Product C 1500 16.5 nit sales pricelS/item) 11250 16950 The total fixed costs are $6,000. Product C has doubled costs than that of A or B. Form a team of two students and work with your peer to obtain the following information using Excel Then, perform an analysis to the results obtained. a. The Break-even point of production and sales of each product b. The Break-even point of production and sales in terms of the three products c. The gross margin rate d. The critical turnover ( in $) As a manager, you are interested in finding out key variables that support your decision making process. Using the above data, find the following information. Then, make appropriate conclusions with other team members e. f- g. Physical value of breakeven point for a targeted profit of $15,000 The breakeven point for a profit rate of 10% Safety interval- how much decrease in sales would the company handle and not entering the loss area? SOLUTION First, since total volume costs VC is given, then we can determine unit volume cost v ( S cost PER UNIT) using: VC = Q × u Also, since Fixed costs FC are given (6000). Product C ( 50%) is $3,000, and each of the two products A and B FC is $1,500 One more part: Since R and v ( Revenue and cost per item) are known, then we can determine the Profit per unit or unit gross contribution, which Revenue-Cost (Per unit) or R-v 4.Explanation / Answer
Sales - Variable cost = Contibution
Contribution - fixed cost = Profit
From the above question :
Sales = Product A 7500*3 = 22,500
Product B 4,500*7.5 = 33,750
Product C 1,500 * 16.5 = 24,750
Variable cost = 11,250, Product B = 13,950 ; Product C = 16,950
Fixed cost = 6,000... Product A = 1,500 Product B = 1,500 Product C = 3,000
Contribution = 22,500-11250; 33,750-13,950; 24,750-16,950
Contribution = $ 11,250; $19,800 ;$ 7,800
A) Bep Sales = fixed cost/ PV ratio
PV ratio =( contibution/ sales )*100
= (11,250/22500)*100; (19,800/33,750)*100 ; (7,800/24,750)*100
=50%; 58.67% ; 31.51%
Therefore BEP sales = 1,500/50% ; $1,500/58.67% ; $3,000/31.51%
= $12,000, $2,556, ; $ 9,520
Critical turnover = actual sales - Bep Sales
= ( $22,500-12,000); ( 33,750-2556); ( 24,750-9520)
= 10,500 ; $ 31,194 ; $ 15,230
Part C and B is also covered in the above computation itself.
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