Jordan and Taylor are beginning to understand break-even analysis. Selling price
ID: 2342030 • Letter: J
Question
Jordan and Taylor are beginning to understand break-even analysis.
Selling price to Yumminess at $10 per tin. The cost is $8 per tin, which includes $6 of direct material and $1.50 of direct labor. Annual manufacturing overhead is estimated at $100,000 for the expected sales of 200,000 tins. Operating expenses are projected to be $80,000 annually.
After looking over the costs for manufacturing overhead and operating expenses, you approximate that 85% of manufacturing overhead and 20% of operating expenses are variable costs.
They are now discussing options with adjustments to costs and sales. As long as they keep bringing brownies, you keep turning out numbers.
1. Jordan and Taylor are considering an advertising campaign for $40,000 annually. They expect this to increase sales by 5%. What would be the new net income? (5 points)
2. Yumminess wants to feature Chocolate Attack Brownies as a monthly special. The predicted sales volume is 50,000 tins. Yumminess wants Jordan and Taylor to cut their selling pricing by 10%, citing that the volume will more than make up the difference. What will be the break-even point in tins during this sale? (5 points)
3. Yumminess wants to feature Chocolate Attack Brownies as a monthly special. The predicted sales volume is 50,000 tins. Yumminess wants Jordan and Taylor to cut their selling pricing by 10%, citing that the volume will more than make up the difference. What net income can Jordan and Taylor expect during this offer? (5 points)
Can you not put the anwsers into a statement sheet.
Explanation / Answer
1
Net income
$
$
Selling price per unit
$10 per tin
Direct Material (given)
$6
Direct labor (given)
$1.50
Manufacturing overhead:
[Annual MOH * 85%]/number of tins expected
[100,000*85%]/200000
$0.425
Operating expense:
[Annual operating expense*20%]/number of tins expected
[80000*0.2]/200000
$0.008
Total variable cost
$8.005 per tin
contribution
$1.995
Number of units sold when sale is increase to 5%
[200000*(100+5%)]
210000
Total contribution Margin (210000*1.995)
418950
Fixed costs:
Manufacturing overhead
15000
Operating expense [80000*80%]
64000
Advertising
40000
119000
Net income
299950
2
Break even point:
Fixed costs:
Manufacturing overhead[100000*15%]
15000
Operating expense [80000*80%]
64000
79000
If selling price cut down by 10% then variable contirbution will be
($10-10%)-$8.005
$0.995
Break even point
[sales/ Contribution per unit]
79397 tins
3
Selling price per unit (10-10%)
9
Variable cost (calculated in (1) above
8.005
Contribution Margin per unit
0.995
Number of units sold (200000+50000 tins)
250000 tins
Contribution margin (250000*0.995)
248750
Fixed cost
79000
Profit
169750
1
Net income
$
$
Selling price per unit
$10 per tin
Direct Material (given)
$6
Direct labor (given)
$1.50
Manufacturing overhead:
[Annual MOH * 85%]/number of tins expected
[100,000*85%]/200000
$0.425
Operating expense:
[Annual operating expense*20%]/number of tins expected
[80000*0.2]/200000
$0.008
Total variable cost
$8.005 per tin
contribution
$1.995
Number of units sold when sale is increase to 5%
[200000*(100+5%)]
210000
Total contribution Margin (210000*1.995)
418950
Fixed costs:
Manufacturing overhead
15000
Operating expense [80000*80%]
64000
Advertising
40000
119000
Net income
299950
2
Break even point:
Fixed costs:
Manufacturing overhead[100000*15%]
15000
Operating expense [80000*80%]
64000
79000
If selling price cut down by 10% then variable contirbution will be
($10-10%)-$8.005
$0.995
Break even point
[sales/ Contribution per unit]
79397 tins
3
Selling price per unit (10-10%)
9
Variable cost (calculated in (1) above
8.005
Contribution Margin per unit
0.995
Number of units sold (200000+50000 tins)
250000 tins
Contribution margin (250000*0.995)
248750
Fixed cost
79000
Profit
169750
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