Question

Finch Company is considering adding a new product. The cost accountant has provided the following data: Expected variable cost of manufacturing Expected annual fixed manufacturing costs $ 46 per unit $83,000 The administrative vice president has provided the following estimates: Expected sales commission Expected annual fixed administrative costs $ 7 per unit $ 45,000 The manager has decided that any new product must at least break even in the first year. Required Use the equation method and consider each requirement separately a. If the sales price is set at $69, how many units must Finch sell to break even? b. Finch estimates that sales will probably be 16,000 units. What sales price per unit will allow the company to break even? c. Finch has decided to advertise the product heavily and has set the sales price at $72. If sales are 7,000 units, how much can the company spend on advertising and still break even? a. Number of units b. Sales price c. Advertising cost per unit

Answer 1

Calculation : = 46 pected valuable cost of manufacturing Expected Sales Commission Janane Cost per unit a $ 53 Perunit cao fired manufacturing Fixed acministrative Total Fixed cost Cost Cost = 83000 = 45000 $ 128000 let breakeven point Sales - Variable Cost - 69x - 53X - 128000 16x = 128000 x = Rooo Units be x fixed cost - = 0 Profit Finch has to sell 8000 units to breakeven. At breakeven point there is no profit or loss. bo Let Sales Price per unit be 'x'. Profit Sales - Variable cost- fixed cost - 16000k - 53 x 16000) - 128000 =0 16000 x - 84 Rooo - 128000 = 0 16000 X - 976000 = 0 16000 x 976000 Sales Price per unit is $61 if it sales 16000 units.

I let advertising expense be Profox 0 Sales - Variable cost- Fixed Costa (72 x7ooo) - (53x7000) - (128000+ x) = so 4000 - 371000 - 128000 - x = 0 5000 - x = 0 x=85000 If units sold is 7000 at 872, it can incur advertising Cost of $5000 and still секе -