P4-31 Changes in Fixed and Variable Costs; Target Profit and Break-Even
Analysis
P4-31 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 $2.9 per unit. Enough
capacity exists in the company's plant to produce 30,900 units of the toy each
month. Variable costs to manufacture and sell one unit would be $1.84, and
fixed costs associated with the toy would total $48,631 per month.
The company's Marketing
Department predicts that demand for the new toy will exceed the 30,900 units
that the company is able to produce. Additional manufacturing space can be
rented from another company at a fixed cost of $2,432 per month. Variable costs
in the rented facility would total $2.03 per unit, due to somewhat less efficient
operations than in the main plant.
Requirement 1:
(a) Calculate the
contribution margin per unit on anything over 30,900 units. (Round your answer
to 2 decimal places. Omit the "$" sign in your response.) Contribution
margin $
(b) Compute the
total fixed costs to be covered if more than 30,900 units are produced. (Omit
the "$" sign in your response) Total fixed costs to be covered by
remaining sales $
(c) Compute the
monthly break-even point for the new toy in units and in total sales dollars.
(Round your answers to the nearest whole number. Omit the "$" sign in
your response.)
Monthly break-even point in
unit sales units
Monthly break-even point in
dollar sales
Requirement 2:
How many units must be sold
each month to make a monthly profit of $10,962?
Units to be sold
units
Requirement 3:
If the sales manager receives
a bonus of 20 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 21% on the monthly
investment in fixed costs? (Round your answer to the nearest whole number.)
Total units to be sold
units
TUTORIAL
PREVIEW
1.
(a) The contribution
margin per unit on the first 30,900 units is:
Per Unit
Sales price $2.90
Less variable expenses 1.84
Contribution margin $1.06
The contribution margin per unit on
anything over 30,900 units is:
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