Nursery manufactures and sells pots. Currently, 250 000 units are sold per year at $3.20 per unit. Fixed costs are $190 000 per year. Variable costs are $1.30 per unit.
Required
a. What is the current annual profit? (1 mark)
b. What is the present break-even point in revenues? (3 marks)
Calculate the new profit for each of the following
changes:
c. a $0.30 per unit increase in variable costs (1 marks)
d. a 7% increase in fixed costs and a 7% increase in units sold (3
marks)
e. a 12% decrease in fixed costs, a 12% decrease in selling price,
a 12% decrease in variable cost per unit and a 30% increase in
units sold (4 marks)
Calculate the new break-even point in units for each of the
following changes:f. a 10% increase in fixed costs (1 marks)
g. a 10% increase in selling price and a $20 000 increase in fixed
costs (2 marks)
a)
Current annual profit = Units sold * (Unit price - Variable cost) - Fixed cost
= 250000*(3.2-1.3)-190000
= $ 285,000
b)
Contribution margin ratio = (3.2-1.3)/3.2 = 0.59375
Present break-even point in revenues = Fixed cost / Contribution margin ratio
= 190000 / 0.59375
= $ 320,000
c)
New variable csot = $ 1.3+0.3 = $ 1.6
New annual profit = Units sold * (Unit price - Variable cost) - Fixed cost
= 250000*(3.2-1.6)-190000
= $ 210,000
d)
New fixed cost = 190000*1.07 = $ 203,300
Units sold = 250000*1.07 = 267,500 units
New annual profit = 267500*(3.2-1.3)-203300
= $ 304,950
e)
New fixed cost = 190000*(1-0.12) = $ 167,200
New selling price = 3.2*(1-0.12) = $ 2.816
New variable cost = 1.3*(1-0.12) = $ 1.144
Units sold = 250000*(1+0.3) = 325,000 units
New annual profit = 325000*(2.816-1.144)-167200
= $ 376,200
f)
New fixed cost = 190000*(1+0.1) = $ 209,000
New break-even point in units = New fixed cost / (Selling price - Variable cost)
= 209000/(3.2-1.3)
= 110,000 units
g)
New selling price = 3.2*(1+0.1) = $ 3.52
New fixed costs = 190000+20000 = $ 210,000
New break-even point in units = New fixed cost / (Selling price - Variable cost)
= 210000/(3.52-1.3)
= 94,595 units
Nursery manufactures and sells pots. Currently, 250 000 units are sold per year at $3.20 per...