| Required: |
| 1. Complete the highlighted items in the VC & FC worksheet to compute variable cost per unit for RC1 and RC2, fixed cost per month, and contribution margin per unit. Base your calculations on the information provided in Exhibit 1, 2008 Monthly Budget, which is provided in the VC & FC worksheet. |
| Use the information computed in #1, above, to answer the following questions in the Breakeven Analysis worksheet. Show all of your work. Label each item carefully and neatly. |
| a) What would break-even sales volume be, assuming a ratio of two RC1s sold for each RC2 sold? |
| b) What level of sales would provide the profit target specified by the parent company of $210,000 for the year? (Assume that they sell all that they produce.) | | Exhibit 1 | | | Variable cost per unit: | | | | | | | | Breeden Security, Inc. (A) | | | | 10,000 RC1 Units | | 5,000 RC2 Units | | | 2008 Monthly Budget | | | | Total | Per Unit | | Total | Per Unit | | | | | | | Variable direct costs: | | | | | | | Sales Revenue | RC1 | RC2 | Total | | Parts | | | | | | | Produce & sell per month - # units | 10,000 | 5,000 | | | Direct labor | | | | | | | Projected selling price | $20.00 | $23.00 | | | Total direct costs | | | | | | | Sales revenue | $200,000 | $115,000 | $315,000 | | Total direct per unit | | | | | | | | | | | | | | | | | | | Manufacturing Costs | | | | | Variable overhead: | | | | | | | Parts | $55,000 | $32,000 | $87,000 | | Supplies ($21,000/15,000 units) | | | | | | | Direct labor | 35,000 | 21,000 | 56,000 | | Total variable cost per unit | | | | | | | Overhead | 70,000 | 42,000 | 112,000 | | | | | | | | | Total manufacturing cost | $160,000 | $95,000 | $255,000 | | Total fixed manufacturing costs: | | | | | | | | | | | | Occupancy | | | | | | | Manufacturing cost per unit | $16.00 | $19.00 | | | Equipment maintenance | | | | | | | | | | | | Equipment depreciation | | | | | | | Selling & administrative expenses | | | 40,000 | | Quality control/production engineering | | | | | | | | | | | | Manufacturing administration | | | | | | | Total expenses | | | $295,000 | | Total | | | | | | | | | | | | | | | | | | | Profit before tax (per month) | | indicate next | $20,000 | | | | | | | | | | | to each item | | | | | RC1 | | RC2 | | | Manufacturing overhead | | below, 'F' or 'V' | | | Total revenue per unit | | | | | | | Supplies | $21,000 | | | | Variable cost per unit | | | | | | | Occupancy (utilities, rent, maintenance) | 15,000 | | | | Contribution margin per unit | | | | | | | Equipment maintenance | 17,000 | | | | | | | | | | | Equipment depreciation | 8,000 | | | | | | | | | | | Quality control and production engineering | 15,000 | | | | | | | | | | | Manufacturing administration | 36,000 | | | | | | | | | | | Total manufacturing overhead | $112,000 | | | | | | | | | | | | | | | | | | | | | | | Total (V) | | | | | | | | | | | | Total (F) | | | | | | | | | | | | | input total VC | | | | | | | | | | | | and total FC | | | | | | | | | | | | above | | | | | | | | | | | | Summary: | $$$ | Units RC1 | Units RC2 | | | | | Break-even sales per month | | | | | | | | Sales to make parent company's target profit | | | | | | | | Sales projected by Klein and Baer | | | | | | | | | | | | | | | | Show all of your calculations below. Label each item clearly and neatly. Transfer your final answers to the table above | | | | | | | | | | | | |
BREEDEN SECURITY, INC. (A) In October 2007, Herman Klein, President, and Marlene Baer, Controt Breeden Security USA were checking the budgeted figures for Breeden's of operations. Breeden' Breeden of $210,000 for the upcoming year. Klein and Baer wanted to make could meet that target had established a target profit fo 200 s parent company in Germany had established a ke sure they THE COMPANY In early 2007, Breeden Security GmbH, a large German manufacturer of of tadio equipment, had set up a subsidiary in the United States to manufacture two produs Breeden had successfully marketed in Europe. One was a miniature signaling devies n had successfully marketed in Europe. One was a miniature signaling device was a bin used primarily for remote operation of garage doors. These RCI" units consisted of larger. They contained a high-security chip which gave them an advantage over almos all the other units in the marketplace. A large manufacturer of motorized garage dor had agreed to take a minimum of 100,000 RCI control units a year. Klein and Baer signal sender, about half the size of a pack of cards, and a receiver, which was a thought that 120,000 units was a reasonable target for 2008 from this customer Breeden also had designed a similar device that could be used by a householder to turn on inside lights when arriving after dark. This unit, called "RC2," was slightly more expensive to make since the receiving part was a complete plug-in device, while the RCI receiver was a component of the garage door unit. Initially, Breeden expected to sell the RC2 unit primarily through mail-order catalogues. Klein and Baer projected sales of 60,000 of these units for 2008. THE BUDGET FOR 2008 Looking at the budget, Baer observed, "I'm relieved to see that our projection results in a budgeted profit that exceeds the target of S210,000 profit for next year expected by the parent company." "Me, too," replied Klein. "But we're budgeting a monthly profit of $20,000, so we don't have a large margin for error. I think we should look at a few things. First, lets see what level of sales would be required to provide the parent company with its target profit of $210,000 for the year. Second, what's our break-even volume assuming our mx stays the same - two RCls for each RC2? Third, what's our manufacturing cost per unit if we produce only 8,000 RC1 units and 4,000 RC2 units per month? Fourth, what's our rofit if each month we only sell 8,000 RCIs and 4,000 RC2s, but we produce 10,0 RCIs and 5,000 RC2s, assuming the unsold units go into finished goods inventory? CASE: IORS PART I: UNDERSTANDING COSTS AND COST BEHA 20
