Problem 6: Break-Even point, Safety Margin; Law firm Neptune Company a small inflatable toy that it is anxious to introduce to its customers. The company's marketing department estimates that the demand for the new toy range between 10 000 units and 40 000 units per month. The new toy will sell for $9.00 per unit. Enough capacity exists in the company's plan to produce 15 000 units of toys each month. Variable expense to manufacture and sell one unit would be $5.00, and incremental fixed expense associated with the toy would total $32 000 per month. Neptune has also identified an outside supplier who could produce the toy for a price of $4.00 per unit plus a fixed fee $29 000 per month for any production volume up to 15 000 units. For production volume between 15 001 and 35 000 units the fixed fee would increase to a total of $58 000 per month.

Required:

1. Calculate the break-even point in unit sales assuming that Neptune does not hire the outside supplier.

2. How much profit will Neptune earn assuming: a. It produces and sells 15 000 units. b. It does not produce any units and instead outsources the production of 15 000 units to the outside supplier and then sells those units to its customers.

3. Calculate the break-even point in unit sales assuming that Neptune plans to use all of its production capacity to produce the first 15 000 units that it sells and that it also commits to hiring the outside supplier to produce up to 25 000 additional units.

4. Assume that Neptune plans to use all of its production capacity to produce the first 15 000 units that it sells and that it also commits to hiring the outside supplier to produce up to 25 000 additional units.

a. What total unit sales would Neptune need to achieve in order to equal the profit earned in requirement 2 (a)?

What total unit sales would Neptune need to achieve in order to attain a target profit of $30 500 per month?

c. How much profit will Neptune earn if it sales 40 000 units per month?

d. How much profit will Neptune earn if it sales 40 000 units per month and agrees to pay its marketing manager a bonus of 20 cents for each unit sold above the break-even point from requirement 3?

e. If Neptune outsources all production to the outside supplier, how much profit will the company earn if it sales 40 000 units?