375 Words2 Pages

Question 1 : What is the break-even volume in units? In sales dollars?
1) Normal Volume 3,000 units
2) Selling Price @ Unit Price $4,350
3) Contribution Margin per unit = Unit Price - Unit Variable Costs $4,350 - $2,070 $2,280
4) Contribution Percent $2,280 / $4,350 0.524138
5) Unit Variable Cost $550 + $825 + $420 + $275 $2,070
6) Unit Fixed Cost $660 + $770 $1,430
7) Total Fixed Cost (TFC) =
Unit Fixed Cost * Normal Volume $1,430 * 3,000 $4,290,000
8) Break-even Volume (in units) =
Fixed Cost / Unit Contribution $4,290,000 / $2,280 1,882 unit
9) Break-even Volume (in sales) =
Fixed Cost / Contribution Percent $4,290,000 / 0.524138 $8,184,867
Question 2 : Market research estimates that monthly volume could increase to 3,500 units, which is well within hoist production capacity limitations, if the price were cut from $4,350 to $3,850 per unit. Assuming the cost behavior patterns implied by he data in Exhibit 1 are correct would you recommend that this action be taken? What would be the impact on monthly sales cost, and income? Regular Selling Price
Impact:
Price $4,350
Quantity $3,000
Revenue $13,050,000
Variable Manufacturing Costs ($5,385,000)
Variable Marketing Costs ($825,000) Contribution Margin $6,840,000
*Fixed Manufacturing Costs ($1,980,000)
*Fixed Marketing Costs ($2,310,000) Income $2,550,000
Using the regular selling price
Income = Revenues – Total costs = $13,050,000 - $10,500,000 = $2,550,000
* Continue to the next page
New Selling Price
Impact:
Price $3,850
Quantity $3,500
Revenue $13,475,000
Variable Manufacturing Costs ($6,282,500)
Variable Marketing Costs ($962,500) Contribution Margin $6,230,000
Fixed Manufacturing Costs ($1,980,000)
Fixed Marketing Costs ($2,310,000) Income $1,940,000
2) After price reduction, income = $13,475,000 - $11,535,000 =

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