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 $3.30 per unit. Enough capacity exists in the company's plant to produce 30,600 units of the toy each month. Variable expenses to manufacture and sell one unit would be $2.08, and fixed expenses associated with the toy would total $55,498 per month The company's Marketing Department predicts that demand for the new toy will exceed the 30,600 units that the company is able to produce. Additional manufacturing space can be rented from another company at a fixed expense of $2,775 per month. Variable expenses in the rented facility would total $2.31 per unit, due to somewhat less efficient operations than in the main plant. Required: 1. Compute the monthly break-even point for the new toy in unit sales and in dollar sales. (Round "per unit" to 2 decimal places, intermediate and final answers to the nearest whole number.) Break-even point in unit sales Break-even point in dollar sales units 2. How many units must be sold each month to make a monthly profit of $12,771? (Round "per unit" to 2 decimal places, intermediate and final answer to the nearest whole number.) Total units to be sold units 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 28% on the monthly investment in fixed expenses? (Round "per unit" to 2 decimal places, intermediate and final answer to the nearest whole number.) Total units to be sold units

Explanation / Answer

Answer 1 Computation of break even point in units and dollar sales Monthly Break even point in unit sales = Fixed expenses for a month / (Selling price per unit - Variable cost per unit) Monthly Break even point in unit sales = ($55498 + $2775)/($3.30 - $2.31) = 58862 units Monthly break even point in dollar sales = Break even point in unit sales * Selling price per unit Monthly break even point in dollar sales = 58861.62 units * $3.30 = $1,94,243 Answer 2 Total units to be sold to make a monthly profit of $12771 = (Fixed expenses + required profit)/(Selling price per unit - Variable cost per unit) Total units to be sold to make a monthly profit of $12771 = ($58273 + $12771)/($3.30 - $2.31) = 71762 units Answer 3 Let us assume x units need to be sold each month. Contribution margin required = Monthly fixed expense + required profit = $58273 + (28% of $58273) = $74589 (x*0.99) - [(x-58862)*0.25] = 74589 0.99x - 0.25x + 14715.50 = 74589 0.74x = 59873.50 x = 80910.14 No.of units to be sold each month = 80910 units

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