Problem 3-38 (Part Level Submission)

Sandhill Company produces a molded briefcase that is distributed to luggage stores. The following operating data for the current year has been accumulated for planning purposes.

Sales price$41.00Variable cost of goods sold13.00Variable selling expenses11.60Variable administrative expenses4.00Annual fixed expensesOverhead$17,347,200Selling expenses3,447,200Administrative expenses7,228,000

Sandhill can produce3,336,000cases a year. The projected net income for the coming year is expected to be $4,003,200. Sandhill is subject to a40% income tax rate.

During the planning sessions, Sandhill's managers have been reviewing costs and expenses. They estimate that the company's variable cost of goods sold will increase15% in the coming year and that fixed administrative expenses will increase by $333,600. All other costs and expenses are expected to remain the same.

Sandhill Company's managers are considering expanding the product line by introducing a leather briefcase. The new briefcase is expected to sell for $91.00; variable costs would amount to $37.00per briefcase. If Sandhill introduces the leather briefcase, the company will incur an additional $667,200per year in advertising costs. Sandhill's marketing department has estimated that one new leather briefcase would be sold for every four molded briefcases.

(a)

If managers decide to introduce the new leather briefcase, how many units of each briefcase would be required to break even in the coming year? Cost of goods sold for the molded briefcase is expected to be $14.95per unit.(For computational purposes round contribution margin per unit to 2 decimal places, e.g. 0.38.Round answers to 0 decimal places, e.g. 25,000.)

Molded Briefcase

Leather Briefcase

Break even units