My Best Friends Corporation (MBFC) produces electronic friends. Two such friends are Party Animal and Study Mate. The following information is available for them for the year 20X0:

Required:

The following two cases are independent but are based on the preceding data.

1. Compute the break-even sales in dollars for both products combined and in units for each product.

2. The company is considering steps to increase sales, particularly of the Study Mate. It is considering increasing advertising by $200,000 and increasing the sales commission on the Study Mate by $10 per unit. Management believes that these steps will increase total sales and increase the proportion of Study Mates sold to 50%. Calculate the new break-even sales level if both changes are implemented and the resulting change in sales mix is achieved.

3. The management of MBFC is considering purchasing new equipment that will reduce direct materials and direct labour costs by 20% for both products. The new equipment would increase fixed manufacturing costs by $450,000, reflecting the depreciation on the new equipment. Assuming that the sales mix would be unaffected, compute the break-even sales dollars.

Transcribed Image Text:

Study Party Animal Mate Selling price (per unit): $400 $260 Variable costs (per unit) Direct materials 78 100 Direct labour 80 60 64 40 Overhead 32 Selling 12 Contribution margin (per unit) $124 $70 Sales mix (% of total sales in units) 60% 40% Total contribution margin $2,048,000 $1,488,000 $560,000 Fixed manufacturing costs (total for both products) 950,000 Selling and administrative 604.430 Net income $ 493,570 Total expected sales in units (the two products combined) 20,000 Capacity (the two products combined) 25,000