HARTSELL MANUFACTURING markets a simple water control and timer that it mass-pro

Question

HARTSELL MANUFACTURING markets a simple water control and timer that it mass-produces. During 2013, the company sold 696,000 units at an average selling price of per solution $4.20 per unit. The variable expenses were $1,900,080, and the fixed expenses were $683,256. (1) What is the product’s contribution margin ratio? (Round to nearest whole percentage) (2) What is the company’s break-even point in units and in dollars for this product? (3) What is the margin of safety, both in dollars and as a ratio? (Round to nearest whole percentage) (4) If management wanted to increase its income from this product by 10%, how many additional units would have to be sold to reach this income level? (5) If sales increase by 51,000 units and the cost behaviors do not change, how much will income increase on this product? Note: I just need help with the last 2 sections. Rest are good!

Explanation / Answer

4 Contribution margin per unit of the product is calculated as under: S.P of the product $4.20 Variable exp. Per unit($1,900,080/696,000) $ (2.73) Contribution margin per unit $1.47 Units sold                                  696,000 Per unit Amount Sales $4.20 $ 2,923,200 Less: Variable cost $(2.73) ($1,900,080) Less: Fixed cost $(683,256.00) Profit                       339,864 If management wants to increase its income by 10% by this product then the company needs to sell additional units. The calculation of additional units are calculated as under: Sales in units (Fixed cost+Desired profit)/Contribution per unit Desired profit Present profit×110% Present profit $339,864 Desired profit $339,864×110% $373,850.40 Sales in units ($683,256+$373,850)/$1.47 719,120 Units Additional units to be sold for the profit of 10% more than the existing profit are 23,120 units. Additional units to be sold=(719,120-696,000)=23,120units 5 IF sales increase by 51,000 and cost behaviour do not change then the income increase on this product is calculated as under: Sales in units 696,000+51,000 747,000 units Per unit Amount Sales(747,000*$4.20) $4.20                    3,137,400 Less: Variable cost(747,000*$2.73) $ (2.73) ($2,039,310) Less: Fixed cost $(683,256) Profit $ 414,834 Existing profit $ (339,864) Income increased by (Profit-existing profit) $ 74,970 If sales increase by 51,000 units the income will increase by $74,970.

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