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Tyrene Products manufactures recreational equipment. One of the companys products, a skateboard, sells for $37.50. The skateboards are manufactured in an antiquated plant that relies
Tyrene Products manufactures recreational equipment. One of the companys products, a skateboard, sells for $37.50. The skateboards are manufactured in an antiquated plant that relies heavily on direct labor workers. Thus, variable costs are high, totaling $22.50 per skateboard of which 60% is direct labor cost. Over the past year the company sold 40,000 skateboards, with the following operating results: Sales (40,000 skateboards) $ 1,500,000 Variable expenses 900,000 Contribution margin 600,000 Fixed expenses 480,000 Net operating income $ 120,000 Management is anxious to maintain and perhaps even improve its present level of income from the skateboards. Due to an increase in labor rates, the company estimates that variable costs will increase by $3 per skateboard next year. If this change takes place and the selling price per skateboard remains constant at $37.50, what will be the new CM ratio and the new break-even point in skateboards? Refer again to the data in (2) above. The president has decided that the company may have to raise the selling price of its skateboards. If Tyrene Products wants to maintain the same CM ratio as last year, what selling price per skateboard must it charge next year to cover the increased labor costs? Novelties, Inc., produces and sells highly faddish products directed toward the preteen market. A new product has come onto the market that the company is anxious to produce and sell. Enough capacity exists in the companys plant to produce 30,000 units each month. Variable expenses to manufacture and sell one unit would be $1.60, and fixed expenses would total $40,000 per month. The Marketing Department predicts that demand for the product will exceed the 30,000 units that the company is able to produce. Additional production capacity can be rented from another company at a fixed expense of $2,000 per month. Variable expenses in the rented facility would total $1.75 per unit, due to somewhat less efficient operations than in the main plant. The product would sell for $2.50 per unit. How many units must be sold each month to make a monthly profit of $9,000? If the sales manager receives a bonus of 15 cents for each unit sold in excess of the break-even point, how many units must be sold each month to earn a return of 25% on the monthly investment in fixed expenses
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