Question

Annual sales volume Unit selling price Variable expense per unit Velcro 98,000 $1.40 $0.80 Metal 206,000 $1.30 $0.70 Nylon 291,000 $1.20 $0.90 Total fixed expenses are $258,000 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. Required: 1. What is the company's over-all break-even point in dollar sales? 2. Of the total fixed expenses of $258,000, $14,580 could be avoided if the Velcro product is dropped, $102,600 if the Metal product is dropped, and $57,600 if the Nylon product is dropped. The remaining fixed expenses of $83,220 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 Of the total fixed expenses of $258,000, $14,580 could be avoided if the Velcro product is dropped, $102,600 if the Metal product is dropped, and $57,600 if the Nylon product is dropped. The remaining fixed expenses of $83,220 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. If the company sells exactly the break-even quantity of each product, what will be the overall profit of the company? Show less

Answer 1

		Velcro	Metal	Nylon	Total
	Annual Sales Volume	98,000	206,000	291,000
	Unit Selling Price	$1.40	$1.30	$1.20
	Variable expense per unit	$0.80	$0.70	$0.90
	Contribution per unit	$0.60	$0.60	$0.30
	Sales total	$137,200	$267,800	$349,200	$754,200
	Contribution total	$58,800	$123,600	$87,300	$269,700
	Gross profit ratio(contribution/sales)				35.76%
	Total fixed cost				258000
1	Breakeven sales( Total fixed Cost/GP ratio)				$721,482
2		Velcro	Metal	Nylon	Total
a	Fixed Cost	$14,580	$102,600	$57,600	$174,780
	Contribution per unit	$0.60	$0.60	$0.30
	Breakeven point(fixed cost/contribution per unit)	24,300	171,000	192,000
2b	If the company sells exactly the breakeven quantity of each product the overall profit of the company will be	-$83,220	(174,780-258,000)