The Goode and Cooke Company produces several models of frying pans. There is lit

Question

The Goode and Cooke Company produces several models of frying pans. There is little difference in the production time required for the various models; the plant is designed to produce 160 frying pans per eight-hour shift, and there are two shifts per working day. However, the plant does not operate for the full eight hours: the employees take two 12-minute breaks in each shift, one in the first four hours and one in the second four hours; two hours per week are devoted to cleaning the factory and performing maintenance on the machines; one four-hour period every four weeks is devoted to the meeting of the quality circle. The plant usually produces about 3,500 frying pans per four-week period. You may ignore holidays in solving this problem. The selling price of the product is $199.95. The variable costs per unit are:

Labor $60.25

Raw material $25.70

Purchased component $21.50

Variable overhead $17.50

The fixed costs total $300,000 per year. Perform a breakeven analysis of this company.

a. What is the actual output?

b. What is the revenue at the breakeven point?

c. Estimate the profit when 9,000 units of the product are sold in a year.

Explanation / Answer

Total time for 4 week ( in min)= 8 hrs x 6 days a week(assumed) x 4 weeks x 60 min per hr=11,520 mins

Time lost due to Idle labor time and Maintenance =

Labor Idle time =12 min x 2 times x 6 days x 4 weeks= 576 mins

Due to cleaning =2 hrs x 4 weeks x 60 mins=                480 mins

Quality Meeting=4 hrs x 60 mins                                     240 mins

                                                                                       ---------------
                                                                                          1,296 mins

Time available for 4 week= Total time for 4 week – Time lost due to Idle labor time and Maintenance

                                           =11,520 mins=1,296 mins=10,224 mins

Standard time required per unit= No of mins in a day/No of units produced per day

                                                   =8 hrs x 60 mins/160 pans

                                                   =480 mins/160 pans

                                                   =3 mins

                         =10,224 mins/3 mins

                          =3,408 pans

Less Variable Cost:

   Labor                            $60.25

Raw Material                  $25.70

Purchased Component    $21.50

   Variable Overhead          $17.50

                                       -------------

                                        124.95

Contribution Per unit= $199.50-124.95=$75

Fixed Cost per 4 week =$300,000/12=$25,000

Break even point in Units= Fixed Cost/ Contribution per unit x Sales price

=$25,000/75 x 199.50=$66,500

                                   =$9,000+$25,000/75

                                   =$34,000/75=453 units

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