Question
Tiwari Tool Company (TTC) manufactures a line of electric garden tools that are sold in general hardware stores. The companys controller, Naresh Tiwari, has just
Tiwari Tool Company (TTC) manufactures a line of electric garden tools that are sold in general hardware stores. The companys controller, Naresh Tiwari, has just received the sales forecast for the coming year for CTCs three products: hedge clippers, weeders, and leaf blowers. TTC has experienced considerable variations in sales volumes and variable costs over the past two years, and Fulton believes the forecast should be carefully evaluated from a cost-volume-profit point of view. The preliminary budget for year XXX1 follows:
| Weeders | Hedge clippers | Leaf Blowers |
Unit sales | 50,000 | 50,000 | 100,000 |
Unit selling price | $28 | $36 | $48 |
Variable manufacturing cost per unit | 13 | 12 | 25 |
Variable selling cost per unit | 5 | 4 | 6 |
For year XXX1, TTCs fixed manufacturing overhead cost is budgeted at $2,000,000 and the companys fixed selling and administrative cost is budgeted at $600,000. TTC has an income tax rate of 40%
a. Assuming the sales mix remains as budgeted, determine how many units of each product TTC must sell in order to breakeven during year XXX1.
b. After preparing the original estimates, management determined that its variable manufacturing cost of leaf blowers would increase by 20% and the variable selling cost of hedge clippers would increase by $1.00 per unit. However, the management has decided not to change the selling price of either product. In addition, the management has learned that its leaf blower has been perceived as the best value in the market, and expects to sell 20% more units of leaf blower than was originally budgeted. At the same time, it expects 20% drop in the volumes of the other two products. Determine how many units of each product it needs to sell in order to breakeven during the year XXX1?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started