Neptune Company produces toys and other items for use in beach and resort areas.

Question

Neptune Company produces toys and other items for use in beach and resort areas. A small, inflatable toy has come onto the market that the company is anxious to produce and sell. The new toy will sell for $3.20 per unit. Enough capacity exists in the company’s plant to produce 30,500 units of the toy each month. Variable expenses to manufacture and sell one unit would be $2.02, and fixed expenses associated with the toy would total $53,485 per month. The company's Marketing Department predicts that demand for the new toy will exceed the 30,500 units that the company is able to produce. Additional manufacturing space can be rented from another company at a fixed expense of $2,674 per month. Variable expenses in the rented facility would total $2.24 per unit, due to somewhat less efficient operations than in the main plant. How many units must be sold each month to make a monthly profit of $11,712? (Round "per unit" to 2 decimal places, intermediate and final answer to the nearest whole number.) 3. If the sales manager receives a bonus of 25 cents for each unit sold in excess of the break-even point, how many units must be sold each month to earn a return of 25% on the monthly investment in fixed expenses? (Round "per unit" to 2 decimal places, intermediate and final answer to the nearest whole number.)

Explanation / Answer

Break - Even Point in Units = Fixed Cost / Contribution per Unit Break - Even Point in $ = Fixed Cost / Contribution % Fixed Cost =     53,485 Contribution per Unit = Sale Price per Unit - Varibale cost per Unit = 3.2-2.02 =         1.18 Break even Point in Units = 53,485/1.18 Break even Point in Units =              45,326 Contribution % = 1.18/3.2 Contribution % = 36.88% Break even Point in $ = 53.485/36.88% Break even Point in $ =            145,044 Profit              11,712 Fixed Expenses              53,485 Contribution              65,197 Sales = 65,197 * 100/36.88 Sales In $            176,781 Sales In Unit @ 3.2 = 176,781/3.2              55,244 Fixed Expenses              56,159 Return @ 25 % on Fixed Expenses              14,040 Contribution              70,199 Units to be Sold = 70,199/1.18 Units to be Sold to earn a return of 25% on Fixed Exepses=              59,491 Units to be Sold to earn a return of 25% on Fixed Exepses= 59,491

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