Calculate Break-Even, Margin of Safety and Decision-Making.

The Nova Company produces only one product Grassnipper. The company has received an order from a large retail chain store for 10,000 Grassnippers at $26 each. This sale will have no impact on the present sales (i.e., will not affect price or volume.)

The president noted from the income statement below that the unit cost of goods sold, based on 50,000 units, was $26.60; and although there would be virtually no marketing or administrative costs, she stated that the offer was $0.60 below cost.

Nova Company Income Statement Year Ended December 31, 20x4 Sle uitc itc icvte sate cies aaa va ay apa eee eas $ 1,850,000 Cost of goods Sold. .scdia.sidt. add% hesy e tes 1,330,000 CATOSS DIONE 7k Osc Scuspaanc ennagcetend $ 520,000 Marketing and administrative expense ............... 250,000 Operating income as wat seWlaviadt.ntiees 270,000 Required:

a. What advice would you give the president on accepting the order if you have the following facts: (1) Nova will save $0.03 a unit because the chain will be putting on their own brand name labels; (2) of the total cost of goods sold, the variable amount is $1,006,400; and marketing and administrative variable cost is $146,000.

b. Based on the facts above:

1. Calculate the break-even point in units for 20x4.

2. Based on present sales level, calculate the margin of safety.

3. Another order is received for 5,000 units at $28. If the order is accepted, the chain's must be rejected due to available capacity. The president notes that the new order will bring a gross profit of $1.40 a unit ($28.00 - $26.60). Should she accept the new order over the chain's order?