Analytical Thinking (Static) (LO7-5) Piedmont Fasteners Corporation makes three different clothing fasteners in its manufacturing facility in North Carolina. All three products are sold in highly competitive markets, so the company is unable to raise prices without losing an unacceptable number of customers. Data from the most recent period concerning these products appear below: Annual sales volume Unit selling price Variable expense per unit Contribution margin per unit Velcro 100,000 $ 1.65 $ 1.25 $ 0.40 Metal 200,000 $ 1.50 $ 0.70 $ 0.80 Nylon 400,000 $ 0.85 $ 0.25 $ 0.60 Total fixed expenses are $400,000 per period. Of the total fixed expenses, $20,000 could be avoided if the Velcro product is dropped, $80,000 if the Metal product is dropped, and $60,000 if the Nylon product is dropped. The remaining fixed expenses of $240,000 consist of common fixed expenses such as administrative salaries and rent on the factory building that could be avoided only by going out of business entirely. The company's managers would like to compute the break-even point in dollar sales for the company as a whole, and the break-even point in unit sales for each product. They are considering two methods for computing each product's break-even point unit sales: Method #1. Include each product's traceable fixed costs and an allocated share of the common fixed costs in the numerator of each break-even calculation. The common fixed costs would be allocated to the three products using sales dollars as the allocation base. Method #2. Only include each product's traceable fixed costs in the numerator of each break-even calculation. Required: 1. Using data from the most recent period, prepare a contribution format segmented income statement 2. What is the company's overall break-even point in dollar sales? 3a. Calculate the break-even point in unit sales for each product using method 1. 3b. If the company sells exactly the break-even quantity of each product, what will be the overall profit for the company using method 1? 4a. Calculate the break-even point in unit sales for each product using method 2. 4b. If the company sells exactly the break-even quantity of each product, what will be the overall profit for the company using method 2? 5. Which method should the company use to calculate each product's break-even point in unit sales? Req 1 Reg 2 Req 3a and 3b Reg 4a and 4b Reg 5 Using data from the most recent period, prepare a contribution format segmented income statement. Sales Variable expenses Contribution margin Traceable fixed expenses Segment margin Common fixed expenses Net operating income Piedmont Fasteners Corporation Contribution Format Income Statement Velcro Metal $ 168,960 $ 307,200 128,000 143,360 40,960 163,840 20,000 80,000 $ 20,960 $ 83,840 Nylon Total $ 348,160 $ 824,320 102,400 373,760 245,760 450,560 60,000 160,000 $ 185,760 290,560 249,600 $ 40,960 Reg 1 Reg 2 Req 3a and 3b Req 4a and 4b Reg 5 What is the company's overall break-even point in dollar sales? (Round your intermediate calculations to 4 decimal places and final answer to the nearest whole number.) Overall break-even point $ 749,382 Reg 1 Req 2 Req 3a and 3b Req 4a and 4b Reg 5 3a. Calculate the break-even point in unit sales for each product using method 1. (Do not round intermediate calculations and round your final answers to the nearest whole number.) 3b. If the company sells exactly the break-even quantity of each product what will be the overall profit for the company using method 1? Show less 3a. Velcro's Break-even point in units 3a. Metal's Break-even point in units 3a. Nylon's Break-even point in units 3b. Overall profit (Loss) 177,901 216,273 275,702 $ Reg 1 Req 2 Req 3a and 3b Req 4a and 46 Req 5 4a. Calculate the break-even point in unit sales for each product using method 2. 4b. If the company sells exactly the break-even quantity of each product what will be the overall profit for the company using method 2? 4a. Velcro's Break-even point in units 4a. Metal's Break-even point in units 4a. Nylon's Break-even point in units 4b. Overall profit (loss) 50,000 100,000 100,000 $ (249,600) Reg 1 Req 2 Req 3a and 3b Req 4a and 4b Req 5 Which method should the company use to calculate each product's break-even point in unit sales? Method 1 Method 2
