The PowerClean Company manufactures an engine for carpet cleaners called the \"S

Question

The PowerClean Company manufactures an engine for carpet cleaners called the "Snoope." Budgeted cost and revenue data for the Snooper" are given below, based on sales of 49,000 units. Sales revenue Less: Cost of goods sold Gross margin Less: Operating expenses Income $2,205,000 1,478,000 $ 727,000 118,000 $609,000 Cost of goods sold consists of $1,137,000 of variable costs and $341,000 of fixed costs Operating expenses consist of $39,000 of variable costs and $79,000 of fixed costs Required A. Calculate the break-even point in units and sales dollars B. Calculate the safety margin (in dollars). C. PowerClean received an order for 7,500 units at a price of $30. There will be no increase in fixed costs, but variable costs will be reduced by $0.56 per unit because of cheaper packaging. Determine the projected increase or decrease in profit from the order assuming there are no opportunity costs A. Break-even point in units units Break-even point in dollars B. Safety margin

Explanation / Answer

Variable cost per unit = (1137000+39000/49000) = 24 per unit

Sale price per unit = 2205000/49000 = 45 per unit

Fixed cost = 341000+79000 = 420000

a) Break even point in units = 420000/(45-24) = 20000 units

Break even point in dollars = 20000*45 =$ 900000

b) Margin of safety = 2205000-900000 = $1305000

c) Increase (decrease ) profit :

Variable cost per unit = 24-.56 = 23.44

Increase (decrease) Profit = (30-23.44)*7500 = 49200

Profit increase by $49200

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