Question

Case 5 32 Break Even Analysis for Individual Products na Multiprochurct Company [LO 55, LO 59 Corporation Cheryl Montoye picked up the phone and ched her boss, Wes Chan, the vice president of marketing at Phedront Fasteness is, I'm not sure how to go abouterswing the questions that came up at the m an with the present yesterday What's the probleme "The president werted to know the break even point for each of the company produkts, but I am having trouble figuring them out Tm sure you can handel Cheryl. And by the way, I need your analysis on my desk tomorrow morming at 8:00 sharp in time for the follow up meeting at 9600" Plemont Fasteners Corporation makes three different clothing fasteners in its manufacturing facility in North Carolina. Data concering these products appear below Velcro Metal Nylon Annual sales volune les,890 212, B89 295,689 Unit selling price $ 2.48 $ 1.99 $ 1.89 Variable expense per unit $ 0.98 $ 1.30 $ 0.60 Total fixed expenses are $270,000 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 Inventortes. Required: 1. What is the company's over-all break-even point in dollar sales? 2 of the total fixed expenses of $270,000 $30,000 could be avoided if the velcro product is cropped. 5101,400 If the Metal product is dropped, and $80,000 If the Nylon product is dropped. The remaining fixed expenses of $58,600 consist of common fixed expenses such as administrative salaries and rent on the factory bullding 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. Red W ZA F red 2 all break even point in die ties? Kod ra What is the company's b nearest thousand de d acimal places and final answer to the Break een pont dodaties

Answer 1

Solution 1:

Computation of Product wise and overall contribution margin ratio - Piedmont Fasteners Corporation
Particulars	Velcro	Metal	Nylon	Total
Sales units	108000	212000	295000
Selling price per unit	$2.40	$1.90	$1.00
Variable cost per unit	$0.90	$1.30	$0.60
Sales Revenue	$259,200.00	$402,800.00	$295,000.00	$957,000.00
Variable cost	$97,200.00	$275,600.00	$177,000.00	$549,800.00
Contribution	$162,000.00	$127,200.00	$118,000.00	$407,200.00
Contribution Margin Ratio	62.5000%	31.5789%	40.0000%	42.5496%

Overall break even point in dollar sales = Fixed costs / Overall CM ratio = $270,000 / 42.5496% = $634,554

Solution 2a:

Computation of Breakeven point of each product
Particulars	Velcro	Metal	Nylon
Selling price per unit	$2.40	$1.90	$1.00
Variable cost per unit	$0.90	$1.30	$0.60
Contribution per unit	$1.50	$0.60	$0.40
Fixed expenses related to each product	$30,000.00	$101,400.00	$80,000.00
Breakeven point (Sales Units) (Fixed Expenses / Contribution per unit)	20000	169000	200000

Solution 2b:

If company sell exact break even quantity of each product, then it will not be able to recover fixed costs not identified to individual product and same will be the loss to the company.

Overall profit (Loss) = ($30,000 + $101,400 + $80,000) - $270,000 = (58,600) - Loss