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B&B produces and sells one single product: BT5. The production capacity of B&B is 28,000 units. Annual sales volume expected in 2021 is 20,000 units.
B&B produces and sells one single product: BT5. The production capacity of B&B is 28,000 units. Annual sales volume expected in 2021 is 20,000 units.
The following information is estimated for 2021: selling price per unit: $130, variable cost per unit: $90, and annual fixed costs: $600,000.
Required:
Answer the following questions in the spaces provided:
- What is the available production capacity?
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- What is the contribution margin per unit?
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- What is the contribution margin ratio?
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- What is the break-even-point (BEP) in units?
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- What is the BEP in sales dollars?
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- Prepare a contribution margin income statement for the expected sales in 2021.
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- What would be the firms profit if 36,000 units are sold in 2021?
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- What would be the BEP in units if selling price increases by $10 and the expected sales in 2021 is 20,000 units?
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- What would be the BEP in units if variable costs increase by $5 per unit and annual fixed costs decrease by $119,975 (assume original selling price and expected sales do not change).
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- Using the original data provided, if B&B receives an offer from BigZ Ltd, which is not a current customer of B&B, to purchase additional 7,000 units at $94 per unit, and B&B would incur additional fixed costs of $25,000 but no other fixed costs to produce the 7,000 units required,
- What would be the incremental revenue if the offer is accepted?
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- What would be the incremental cost if the offer is accepted?
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- Would you accept the offer? Why?
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- What qualitative factor would make you to change your decision (identify only one qualitative factor)?
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