Question
HC Company manufactures different sizes of toys. The manager has just received the sales forecast for the coming year for the coming year for the
HC Company manufactures different sizes of toys. The manager has just received the sales forecast for the coming year for the coming year for the two different products: small toys and big toys. HC Company went through different variations in sales volume and variable costs over the last couple of years. The forecast should be examined from a Cost-Volume-Profit (CVP) viewpoint. The information for 2019 is presented as:
Small Toys | Big toys | |
Unit sales | 80,000 | 120,000 |
Unit selling price | $36 | $48 |
Variable manufacturing cost per unit | $12 | $26 |
Variable selling cost per unit | $2 | $4 |
For 2019, HC Company fixed factory overhead is $2,200,000 and fixed selling and admin expense are forecasted to be $800,000
1) After preparing the original data, the company found out that its variable manufacturing cost of big toys would increase by 30% and the variable selling costs of small toys would increase by $4 per unit. The company has decided not to change the selling price of either product. Sales mix will also remain unchanged. Calculate how many units of each product the company would have to sell in order to breakeven in 2019.
2) Calculate Margin of Safety in 2019
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