Question

Case #2 A Saved Cheryl Montoya picked up the phone and called her boss, Wes Chan, the vice president of marketing at Piedmont Fasteners Corporation: "Wes, I'm not sure how to go about answering the questions that came up at the meeting with the president yesterday." "What's the problem? "The president wanted to know the break-even point for each of the company's products, but I am having trouble figuring them out." 100 points I'm sure you can handle it. Cheryl. And, by the way, I need your analysis on my desk tomorrow morning at 8:00 sharp in time for the follow-up meeting at 9:00." Piedmont Fasteners Corporation makes three different clothing fasteners in its manufacturing facility in North Carolina. Data concerning these products appear below: eBook Print Annual sales volume Unit selling price Variable expense per unit Velcro Metal Nylon 114,000 204,000 292,000 $ 1.80 $ 1.30 $ 1.10 $ 0.70 $ 0.80 $ 1.00 References Total fixed expenses are $261.000 per year. All three products are sold in highly competitive markets, so the company is unable to raise prices without losing an unacceptable numbers of customers. The company has an extremely effective lean production system, so there are no beginning or ending work in process or finished goods inventories. Requlred: 1. What is the company's over-all break-even point in dollar sales? 2. Of the total fixed expenses of $261,000, $23,540 could be avoided if the Velcro product is dropped. $86.000 if the Metal product is dropped, and $18.700 if the Nylon product is dropped. The remaining fixed expenses of $132.760 consist of common fixed expenses such as administrative salaries and rent on the factory building that could be avoided only by going out of business entirely. a. What is the break-even point in unit sales for each product? b. If the company sells exactly the break-even quantity of each product, what will be the overall profit of the company? Complete this question by entering your answers in the tabs below. Required 1 Required 2A Required 2B What is the company's over-all break-even point in dollar sales? (Round CM ratio to 4 decimal places and final answer to the nearest thousand dollars.) Break-even point in dollar sales < Required 1 Required 2A >

Answer 1

Please give positive ratings so I can keep answering. It would help me a lot. Please comment if you have any query. Thanks!

Cheryl Montoya
Workings for Answer 1
Calculation of sales mix of products
	Velcro	Metal	Nylon	Total	Note
Annual Sales Volume	114,000.00	204,000.00	292,000.00	610,000.00	A
Sales mix	18.69%	33.44%	47.87%	100.00%	This is annual sale volume of each product/ Total sales volume.
Sell Price	1.80	1.30	1.10		B
Variable expense	0.70	0.80	1.00		C
Contribution margin per unit	1.10	0.50	0.10		D=B-C
Total Contribution margin	125,400.00	102,000.00	29,200.00	256,600.00	E=D*A
Weighted Contribution margin per unit				0.42	F= Total Contribution margin/ Annual Sales Volume
Total fixed expenses				261,000.00	G
Breakeven units				620,459.86	H=G/F
Breakeven units allocated	115,954.79	207,498.05	297,007.01	620,459.86	I= Breakeven units* Sales Mix
Sale Value	208,718.63	269,747.47	326,707.72	805,173.81	J=H*I
So the company's overall breakeven point in sales dollars is $ 805,173.81.
Answer 2- a	Velcro	Metal	Nylon	Total	Note
Sell Price	1.80	1.30	1.10		See B
Variable expense	0.70	0.80	1.00		See C
Contribution margin per unit	1.10	0.50	0.10		See D
Product specific fixed costs	23,540.00	86,000.00	18,700.00	128,240.00	K
Breakeven units	21,400.00	172,000.00	187,000.00	380,400.00	L=K/D
Answer 2- b	If the company sells exactly the break-even quantity of each product then there will still be overall net loss of $ 132,760. Because these are administrative costs and not allocated to products so these are not covered in the analysis of Answer 2-a.