Problem 3-38 (Part Level Submission) Blossom Company produces a molded briefcase

Question

Problem 3-38 (Part Level Submission) Blossom Company produces a molded briefcase that is distributed to luggage stores. The following operating data for the current year has been accumulated for planning purposes. Sales price Variable cost of goods sold Variable selling expenses Variable administrative expenses S41.00 13.00 11.60 4.00 Annual fixed expenses Overhead $7,800,000 1,550,000 3,250,000 Selling expenses Administrative expenses Blossom can produce 1,500,000 cases a year. The projected net income for the coming year is expected to be 51,800,000. Blossom is subject to a 40% income tax rate. During the planning sessions, Blossom's managers have been reviewing costs and expenses. They estimate that the company's variable cost of goods sold w expenses will increase by $150,000. All other costs and expenses are expected to remain the same increase 15% in the coming year and that fixed administrative Blossom Company's managers are considering expanding the product line by introducing a leather briercase. The new briefcase is expected to sell for $91.00; variable costs would amount to 537.00 per briefcase. I Blossom Introduces the leather briefcase, the company will incur an additional $300,000 per year In advertising costs. Blassom's marketing department has estimated that one new leather briefcase would be sold for every four molded briefcases. (a) If managers decide to introduce the new leather briefcase, how many units of each briefcase would be required to break even in the coming year? Cost of goods sold for the molded briefcase is expected to be $14.95 per unit. (For computational purposes round contribution margin per unit to 2 decimal places, e.g. 0.38. Round answers to o decimal places, e.g. 25,000.) Molded Briefcase Leather Briefcase Break even units Click if you would like to Show Work for this question:

Explanation / Answer

Moulded Lether Total Selling price 41 91 Less: variable cost per unit 30.55 37 Contribution margin per unit 10.45 54 Sales mix 5 1 Contribution per sales mix 52.25 54 106.25 Total fixed cost: Overheads 7,800,000 Selling expense 1,550,000 Admin expense (3250,000+150,000) 3,400,000 Advertising cost 300,000 Total fixed cost: 13,050,000 Break even in term of salesmix: Total fixed cost/ Contribution per sales mix = $ 13050,000 /106.25 = 122824 sales mix Number of units to be at break even: Molded case: (122824*5): 614120 units Leather case (122824*1): 122824 units

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