Jordan and Taylor are beginning to understand break-even analysis. Selling price to Yumminess at $10 per tin. The cost is $8 per tin, which includes $6 of direct material and $1.50 of direct labor. Annual manufacturing overhead is estimated at $100,000 for the expected sales of 200,000 tins. Operating expenses are projected to be $80,000 annually. After looking over the costs for manufacturing overhead and operating expenses, you approximate that 85% of manufacturing overhead and 20% of operating expenses are variable costs. They are now discussing options with adjustments to costs and sales. As long as they keep bringing brownies, you keep turning out numbers. Chapter 19 Questions: 1. Jordan and Taylor are considering an advertising campaign for $40,000 annually. They expect this to increase sales by 5%. What would be the new net income? (5 points) 2. Yumminess wants to feature Chocolate Attack Brownies as a monthly special. The predicted sales volume is 50,000 tins. Yumminess wants Jordan and Taylor to cut their selling pricing by 10%, citing that the volume will more than make up the difference. What will be the break-even point in tins during this sale? (5 points) 3. Yumminess wants to feature Chocolate Attack Brownies as a monthly special. The predicted sales volume is 50,000 tins. Yumminess wants Jordan and Taylor to cut their selling pricing by 10%, citing that the volume will more than make up the difference. What net income can Jordan and Taylor expect during this offer? (5 points)

I have 2 answers not sure which is correct. Please help? Answer 1:

1). Total variable cost per unit = Material + Labor + Manufacturing overhead + Operating expenses.

= 6 + 1.50 + (100000 * 0.85 / 200000) + (80000 * 0.20 / 200000)

= 6 + 1.50 + 0.425 + 0.08

= $ 8.005 per unit

Total Fixed cost = Fixed Manufacturing overhead + Fixed Operating expenses + Advertising expense

= (100000 * 0.15) + (80000 * 0.80) + 40000

= 15000 + 64000 + 40000

= $ 119000

Contribution per unit = Sales price per unit - Variable cost per unit.

= 10 - 8.005

= $ 1.995

Total Sales (in units) = 200000 + 5 % of 200000 = 210000 units.

NET INCOME= Total contribution - Total fixed cost.

= (210000 * 1.995) - 119000

= 418950 - 119000= $ 299950

2). Break-even point (in tins) = Fixed cost / Contribution per unit.

Contribution per unit = Sales price per unit - Variable cost per unit.

= (10 - 10 % of 10) - 8.005

= (10 - 1) - 8.005

= 9 - 8.005

= $ 0.995

Total Fixed cost = Fixed Manufacturing overhead + Fixed Operating expenses.

= (100000 * 15 %) + (80000 * 80 %)

= 15000 + 64000

= $ 79000

BREAK EVEN= 79000 / 0.995

= 79396.98 (Rounded off to 79397 units)

3) Net income = Total contribution - Fixed costs.

Total contribution = Total Sales - Total variable costs.

Total sales = Number of units sold * Selling price per unit.

= (200000 + 50000) * (10 - 10 % of 10)

= 250000 * (10 - 1)

= 250000 * 9

= $ 2250000.

Total variable cost = 250000 * 8.005 = $ 2001250

Total contribution = 2250000 - 2001250 = $ 248750

Total fixed cost = $ 79000 (Fixed Manufacturing overhead and Fixed Operating expenses)

NET INCOME= 248750 - 79000 = $ 169750

ANSWER 2:

Units sold + increased sales percentage =200000+5%=?

200000+10000=210000

Units sold * 2

210000*2=420000

420000-Fixed costs

420000-[Fixed costs

($100,k*0.85)+ ($80,k*.20)+ 40000]

420000-(85000+16000+40000)=

420000-141000=279,000

Answer: Net Income= $279,000

BEP in units = Fixed cost / (Sales per unit Variable cost per unit)= [($100,000*0.85) + ($80,000*.20)] / [($10-1%) - $8]= BEP >101,000

Price cut 10-10%> 10-1=$9 Units sold 200,000+50,000=250,000Units sold - fixed cost=operating income 250,000-101000=$149,000. Answer: Operating income=$149,000