Case 1: Pole Corporation Cherry Montoya picked up the phone and called her boss, Joc Chen the vice president of markcting at Polc Corporation: "Joc, I am not sure how to go about answering the questions that came up at the meeting with president yesterday. "What's the problem?" "The president wanted to know the break-even point for cach of the company's products, but I am having trouble figuring them out. "I'm sure you can handle it, Cherry, And, by the way, I need your analysis on my desk tomorrow morning at 8:00 sharp in time for the follow-up meeting at 9:00. Pole Corporation makes three different clothing zippers in its manufacturing facility in North Carolinc, Data concerning these products appear below. Normal annual sales volume Unit selling price Variable cost per unit Coil 100,000 $ 2.50 $ 2.10 Metal 300,000 $ 1.50 $ 0.70 Moulded Plastic 400,000 $ 0.85 $ 0.25 Total fixed costs are $468,000 per year. All three products are sold in highly competitive markets, so the company is unable to raise its prices without losing unacceptable numbers of customers. The company has an extremely effective just-in-time manufacturing system, so there are no beginning or ending work in process or finished goods inventorics. Questions: 1. What is the overall profit of the company? 2. What is the company's over-all break-even in total sales dollars? 3. What is the company's current margin of safety in terms of sales dollars? 4. Perform a multiproduct breakeven point for Pole Corporation. How many of each type of job does he need to sell in order to break even? 5. Of the total fixed costs of S 468,000, $ 20,000 could be avoided if the Coil product were dropped, $ 80,000 if the Metal product were dropped, and $ 60,000 if the Moulded Plastic product were dropped. The remaining fixed costs of $ 308,000 consist of common fixed costs such as salaries and rent on the factory building that could be avoided only by going out of business entirely. a. If the managers consider allocating the common fixed costs among the products prior to computing the break-evens for individual products, what will be the break- even point in units for each product? Any of a number of allocation bases could be used for this purpose sales, variable costs product-specific fixed costs, contribution margins, ctes b. Which product/products should be dropped according to computed break-evens units in question 5.a? After this strategic decision what will be the overall profit of the company! Compare the profit that you computed in question I and make a comment whether the strategic decision is reasonable or not
