Super Sales Company is the exclusive distributor for a revolutionary bookbag. Th
ID: 2421632 • Letter: S
Question
Super Sales Company is the exclusive distributor for a revolutionary bookbag. The product sells for $38 per unit and has a CM ratio of 34%. The company's fixed expenses are $284,240 per years. The company plans to sell 23,000 bookbags this year. What are the variable expenses per unit? (Round your answer to 2 decimal places. Omit the "$" sign in your response.) Use the equation method: What is the break-even point in units and in sales dollars? (Do not round Intermediate calculations. Round your answers to the nearest whole number. Omit the "$" sign in your response.) What sales level in units and in sales dollars is required to earn an annual profit of $64,600? (Do not round intermediate calculations. Round your answers to the nearest whole number. Omit the "$" sign in your response.) Assume that through negotiation with the manufacturer the Super Sales Company is able to reduce its variable expenses by $4.70 per unit. What is the company's new break-even point in units and in sales dollars? (Do not round intermediate calculations. Round your final answers to the nearest whole number. Omit the "$" sign in your response.)Explanation / Answer
(1)
Unit variable expense = Selling price x (1 - CM Ratio)
= $38 x (1 - 0.34)
= $38 x 0.66
= $25.08
(2)
(a)
(i) BEP (Units) = Fixed cost / (Selling price - unit variable cost)
= $284,240 / $(38 - 25.08)
= $284,240 / $12.92
= 22,000
(ii) BEP ($) = Fixed cost / CM ratio
= $284,240 / 0.34
= $836,000
(b)
Required sales (unit) = (Fixed cost + Desired profit) / (Selling price - unit variable cost)
= $(284,240 + 64,600) / $12.92
= $348,240 / $12.92
= 26,954
Required sales ($) = (Fixed cost + Desired profit) / CM Ratio
= $348,240 / 0.34
= $1,024,235
(c)
New CM ratio = (Selling price - unit variable cost) / Selling price
New variable cost = $(25.08 - 4.7) = $20.38
CM ratio = $(38 - 20.38) / $38 = $17.62 / $38 = 46.37%
(i) BEP (units) = $284,240 / $17.62 = 16,132
(ii) BEP ($) = $284,240 / 0.4637 = $612,983
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