Question

Neptune Company produces toys and other items for use in beach and resort areas. A small, inflatable toy has come onto the market that the company is anxious to produce and sell. The new toy will sell for $3 per unit. Enough capacity exists in the company’s plant to produce 16,000 units of the toy each month. Variable costs to manufacture and sell one unit would be $1.25, and fixed costs associated with the toy would total $35,000 per month.
The company’s Marketing Department predicts that demand for the new toy will exceed the 16,000 units that the company is able to produce. Additional manufacturing space can be rented from another company at a fixed cost of $2,000 per month. Variable costs in the rented facility would total $1.50 per unit, due to somewhat less efficient operations than in the main plant.
Required:
1. Compute the monthly break-even point for the new toy in unit sales and in dollar sales.
2. How many units must be sold each month to make a monthly profit of $12,000?
If the sales manager receives a bonus of 10 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?

Answer 1

Answer:

1) 22,000 units; $66,000.

2) 30,000 units

3) 28,607 units

Explanation:

1)

16,000 units × $1.75 per unit = $28,000  ($3-$1.25)

Remaining unrecovered fixed cost = $7,000 ($35,000 - $28,000)

Total fixed costs to be covered by remaining sales = $9000 ($7000+$2000 addition cost).

--> ($3-$1.5=$1.5 Contribution Margin per unit)

6,000 units ($9000 divided $1.5 )

Total units = 16000+6000=22,000 units

22,000 units x $3=$66,000.

2) Target profit = $12000

CM ratio = $3-1.5=$1.5

$12000/$1.5=8,000 units.

30,000 units (22,000 units + 8,000 units )

3)

Bonus 0.10 per unit cause CM drop from $1.5 to $1.4 per unit

$9,250 -->($35,000+$2,000)]*25%

$9250/$1.4 =  6,607 units

22,000 units + 6,607 units = 28,607 units.

Answer 2

The correct options to the question will be (1) 22,000 units; $66,000; (2) 30,000 units; and (3) 28,607 units

The monthly break-even point for the new toy in unit sales and in dollar sales will be:

= 16,000 units × ($3 - $1.25)

= 16000 units × $1.75.

= $28000

Then, the remaining unrecovered fixed cost will be:

= $35,000 - $28,000 = $7000

Then, the total fixed costs that will be gotten from the remaining sales will be:

=  $7000 + $2000 = $9000

The contribution margin per unit will be: = $3 - $1.5 = $1.5

The units will be: 9000/$1.5 = 6000

Total units will then be: = 16000+6000=22,000 units

Therefore, the dollar sales will be:

22,000 units x $3 = $66,000.

2) Target profit = $12000

Contribution Margin ratio = $3-1.5 = $1.5

Therefore, the units that must be sold each month to make a monthly profit of $12,000 will be:

= $12000/$1.5 = 8,000 units.

Number of units will be:

= 22,000 units + 8,000 units

= 30000 units

3)This will be calculated as:

= ($35,000+$2,000)] × 25%

= $37000 × 25%

= $9250.

This will then be:

= ($9250)$1.4) + 22000

= 6607 + 22000

= 28607 units

The number of units will be 28607 units

Read related link on:

https://brainly.com/question/17094719