Question
1. The Unique Toys Company manufactures and sells toys. Currently, 300,000 units are sold per year at $12.50 per unit. Fixed costs are $880,000 per
1. The Unique Toys Company manufactures and sells toys. Currently, 300,000 units are sold per year at $12.50 per unit. Fixed costs are $880,000 per year. Variable costs are $7.50 per unit.
i) What is the present breakeven point in Units?
ii) What is the present breakeven point in revenues?
iii) How may Units will the company need to sell to earn a profit of $100,000? Compute the new breakeven point and the Margin of Safety with the below changes: -10% decrease in fixed costs, a 10% decrease in selling price, a 10% increase in variable cost per unit and 25% increase in units sold.
b) Enumerate on the main objectives of the Cost Volume Profit Analysis (CVP).
2. Virginia Tool Co. is considering an investment in a B2B system for purchasing office supplies and non-operating inputs. The project would require an initial investment of $400,000 and have an expected life of 6 years. The income is expected to be $95,000 in each of the first 4 years and $80,000 in each of the next 2 years. The companys discount rate is 8 percent.
Required:
a. Calculate the payback period.
b. Calculate the NPV on the project.
c. Discuss whether this is acceptable.
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