Question
Beantown Baseball Company makes baseballs that sell for $13 per two-pack. Current annual production and sales are 576,000 baseballs. Costs for each baseball are as
Beantown Baseball Company makes baseballs that sell for $13 per two-pack. Current annual production and sales are 576,000 baseballs. Costs for each baseball are as follows:
Direct material | $2.00 |
Direct labor | 1.25 |
Variable overhead | 0.50 |
Variable selling expenses | 0.25 |
Total variable cost | $4.00 |
Total fixed overhead | $750,000 |
a. Calculate the unit contribution margin in dollars and the contribution margin ratio for the company. Note: Round percentage to two decimal places (for example, round 32.5555% to 32.56%). Unit contribution margin in dollars Contribution margin ratio b. Determine the break-even point in number of baseballs. c. Calculate the dollar break-even point using the contribution margin ratio. Note: Round amount to the nearest whole dollar. d. Determine the companys margin of safety in number of baseballs, in sales dollars, and as a percentage. Note: Round margin of safety percentage to two decimal places (for example, round 32.555% to 32.56%). Margin of safety in baseballs: Margin of safety in dollars:
Margin of safety percentage: e. (1) Compute the companys degree of operating leverage. Note: Round amount to two decimal places (for example, round 32.555 to 32.56). Degree of operating leverage (2) If sales increase by 30 percent, by what percentage would pre-tax income increase? Note: Round to the nearest whole percentage point (for example, round 24.5% to 25%). Percentage increase in pre-tax income f. How many baseballs must the company sell if it desires to earn $657,600 in pretax profit? g. If the company wants to earn $450,000 after tax and is subject to a 40 percent tax rate, how many baseballs must be sold? h. How many baseballs would the company need to sell to break even if its fixed cost increased by $30,000? (Use original data.) i. Beantown Baseball Company has received an offer to provide a one-time sale of 12,000 baseballs at $8.80 per two-pack to the Lowell Spinners. This sale would not affect other sales, nor would the cost of those sales change. However, the variable cost of the additional units would increase by $0.20 for shipping, and fixed cost would increase by $3,600. Based solely on financial information, should the company accept this offer? Would this amount be an incremental pre-tax profit or loss? Note: Do not use a negative sign with your answer.
$ The company should accept or reject the offer?
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