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Piedmont Fasteners Corporation makes three different clothing fasteners in its manufacturing facility in North Carolina. All three products are sold in highly competitive markets, so
Piedmont Fasteners Corporation makes three different clothing fasteners in its manufacturing facility in North Carolina. All three products are sold in highly competitive markets, so the company is unable to raise prices without losing an unacceptable number of customers. Data from the most recent period concerning these products appear below:
Velcro Metal Nylon
Annual sales volume
Unit selling price $ $ $
Variable expense per unit $ $ $
Contribution margin per unit $ $ $
Total fixed expenses are $ per period. Of the total fixed expenses, $ could be avoided if the Velcro product is dropped, $ if the Metal product is dropped, and $ if the Nylon product is dropped. The remaining fixed expenses of $ 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.
The company's managers would like to compute the breakeven point in dollar sales for the company as a whole, and the breakeven point in unit sales for each product. They are considering two methods for computing each product's breakeven point unit sales:
Method #: Include each product's traceable fixed costs and an allocated share of the common fixed costs in the numerator of each breakeven calculation. The common fixed costs would be allocated to the three products using sales dollars as the allocation base.
Method #: Only include each product's traceable fixed costs in the numerator of each breakeven calculation.
Required:
Using data from the most recent period, prepare a contribution format segmented income statement.
What is the companys overall breakeven point in dollar sales?
a Calculate the breakeven point in unit sales for each product using method
b If the company sells exactly the breakeven quantity of each product, what will be the overall profit for the company using method
a Calculate the breakeven point in unit sales for each product using method
b If the company sells exactly the breakeven quantity of each product, what will be the overall profit for the company using method
Which method should the company use to calculate each product's breakeven point in unit sales?
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