Question
Cheryl Montoya picked up the phone and called her boss, Wes Chan, the vice president of marketing at Piedmont Fasteners Corporation: Wes, Im not sure
Cheryl Montoya picked up the phone and called her boss, Wes Chan, the vice president of marketing at Piedmont Fasteners Corporation: Wes, Im not sure how to go about answering the questions that came up at the meeting with the president yesterday. |
"What's the problem?" |
The president wanted to know the break-even point for each of the companys products, but I am having trouble figuring them out. |
Im sure you can handle it, Cheryl. 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. |
Piedmont Fasteners Corporation makes three different clothing fasteners in its manufacturing facility in North Carolina. Data concerning these products appear below:
Velcro | Metal | Nylon | |
Normal annual sales volume | 110,000 | 217,000 | 316,000 |
Unit selling price | $1.90 | $1.50 | $1.20 |
Variable expense per unit | $.70 | $1.00 | $.80 |
|
Total fixed expenses are $270,000 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 lean production system, so there are no beginning or ending work in process or finished goods inventories. |
Required: | |
1. | What is the companys over-all break-even point in dollar sales? (Round CM ratio to 4 decimal places and final answer to the nearest whole dollar.) |
a. | What is the break-even point in unit sales for each product? (Do not round intermediate calculations.) |
Of the total fixed expenses of $270,000, $28,680 could be avoided if the Velcro product is dropped, $78,000 if the Metal product is dropped, and $78,400 if the Nylon product is dropped. The remaining fixed expenses of $84,920 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. |
a. | What is the break-even point in unit sales for each product? (Do not round intermediate calculations.) |
b. | If the company sells exactly the break-even quantity of each product, what will be the overall profit of the company? (Do not round intermediate calculations.) |
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