lush lawn inc produces and sells electric lawn trimmers for $120each AI8, 750 un
ID: 2561751 • Letter: L
Question
lush lawn inc produces and sells electric lawn trimmers for $120each AI8, 750 units ESSAY. Write your answer in the space provided or on a separate sheet of paper. 3) Lush Lawn, Inc. produces and sells electric lawn trimmers for $120 each. The variable costs of each mov total $80 while total monthly fixed costs are $6,000. Current monthly sales are $48,000. The company is considering a proposal that will decrease the selling price by 10%, increase monthly fixed costs by 50% ar increase unit sales to 450 units per month d: pute the company's current break-even point in units and dollars.Explanation / Answer
Req1: Current Selling price per unit $ 120 Variable cost per unt $80 Total fixed cost $6000 Monthly Sales $ 48,000 Sales in units (48,000/120 ) = 400 units Contribution per unit (Selling price- variable cost) = $40 per unit Break even point in Units= Total fixed cost/ contribution per unt (6000 /40) = 150 units Break even pointin $ = Break even point units*selling price (150*120)= $ 18,000 Req2: Total sales : $ 48,000 Break even sales in $ $ 18,000 Margin of safety = total sales - Break even sales ( 48000 -18000 ) = $ 30,000 Margin of safety in units = Sales units - Break even units (400-150 ) = 250 units Percentage of MOS to total saels = 250/400 *100 =62.50% Req3: Proposed Scenario Revised selling price =120-10% = $ 108 per unit Variable cost per unit = $ 80 per unit Contribution per unit (108-80)= $28 per unit Revised fixed cost = 6000+50%= $ 9,000 Sales units = 450 units Break even pointin units = Total fixed cost / revised contribution per unit (9000/28)= 322 units Margin of Safety = Total sales units - Break even point in units (450-322) = 128 units Req4: Increase or decrease in profits Profits in current scenario = Total contribution - Fixed cost (400*40) -6000 = $ 10,000 Profits in Proposed scenario = Total contribution- Fixed cost (450*28)- 9000=$ 3600 Decrease in Profits by $ 6400
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