Benoit Manufacturing Company manufactures and sells parts for various musical gadgets. The following

information to a single part which is used in the production of a wind instrument. The business earned

Operating Income of $220,000 in 2019, when production was 3,000 units and the president is under

pressure from shareholders to increase operating income in 2020 and is therefore considering the

implementation of strategies mainly geared at increasing revenues and or decreasing variable costs. Data for

variable cost per unit and total fixed costs were as follows:

Variable expenses per unit:

Direct Material $58

Direct Labor $74

Variable Manufacturing Overhead $48

Fixed expenses:

Fixed Manufacturing Overhead $215,000

Fixed Selling Costs $65,000

Fixed Administrative Costs $160,000

a. The President of Benoit is under pressure from shareholders to increase operating income by 50% in

2020. Management expects per unit data and total fixed costs to remain the same in 2020. Compute

the number of units that would have to be sold in 2020 to reach the shareholders desired profit level. Is

this a realistic goal?

b. Assume that as a result of reorganizing the production process, the management of Benoit

Manufacturing was able to reduce direct material cost per unit by $5 due to a change in the supplier of

the raw material used in the production process. Variable manufacturing overhead per unit would also

decrease by $3. The business is also considering paying additional annual commission of $36,400 to

its sales team as part of the sales expansion effort, which should result in an increase in sales revenue.

The head of the marketing department has indicated that the effort of the sales team should result in a

5% increase in sales volume. What must the new selling price per unit be if the company wishes to

meet the shareholders desired profit level for 2020? Is this a viable option?

c. Briefly explain the impact of each of the following scenarios on the break-even point and the margin of

safety:

(i) Increase in sales volume

(ii) Increase in total fixed costs

(iii) Increase in selling price per unit

(iv) Decrease in variable costs per unit