Reference no: EM131053501

Derby Phones is considering the introduction of new model of headphones with the following prices and cost characteristics

Sales price	$270 per unit
Variable cost	120 per unit
Fixed cost	300,000 per month

Require

a) What number must Derby sell per month to break even

b) What number must Derby sell to make an operating profit of $180,000 for the month.

Exhibit 3.5

	Lo-Lev Company(1,000, 000 units		Hi-Lev Company(1,000,000 units)
	Amount	Percentage	Amount	Percentage
Sales	$1,000,000	100	1,000,000	100
Variable cost	750,000	75	250,000	25
Contribution Margin	250	25	750,000	75
Fixed Cost	50,000	5	550,000	55
Operating profit	200,000	20	200,000	20
Break-even Point	200,000units		733,334 units
Contribution margin per init	0.25		0.75

3.33

The Greenback Stores cost structure is dominated by variable cost with a contribution margin ratio of 2.5 and fixed cost of $40,000. Every dollar of sales contributes 25cents toward fixed costs and profit. The cost structure of competitor. One-Mart, s dominated by fixed cost with a higher contribution margin ratio of .75 and fixe cost of $440,000. Every dollar of sales contributes 75 cents toward fixed costs and profits. Both companies have sales of $800,000 for the month.

Required

a. Compare the two compares cost structures using the format in Exhibit 3.5

b. Supposes that both companies experience a 15 percent increase in sales volume. By how much would each company profits increase?

3.51

Odd Wallow Drinks is considering adding a new line of fruit juice to its merchandise products. This lines of juices has the following prices and cost

Selling price per case	$75
Variable cost per case	$36
Fixed cost per year associated with this product	$12,168,000
Income tax rate	40%

Required

a. Compute Odd Wallow Drink break-even point in units per year

b. How many cases must Odd Wallow Drinks sell to earn $1,872,000 per year after taxes on the juice

3.57

Sundial, Inc. produces two models of sunglass: AU and AZ. The sunglass have the following charaterrstcs

	AU	NZ
Selling price per unit	$160	$160
Variable cost per unit	60	80
Expected units sold per yeesra	60,000	40,000

The total fixed cost per years for the company are $2,208,000

Required

a) What is the anticipated level of profits for the expected sales volume

b) Assuming that the product mix is the same at the break-even point, compute the break-even point

c) If the products sales mix were to change to nine Programmer-style and for each Executives style bag, what will be the new break-even volume for On-the-Go

3-59

Minot Furniture sells two model of desk to retail customers-basics and adjustable(for these who want the option to stand at their desk) Basic desk sell for $600 each and adjustable desk sell for $900 each. The variable cost of a basics desk is $360 and that of an adjustable desk is $450. Annual fixed cost at Minot Furniture are $243,000. The break-even point at the current sales mix is 750 total units

Required

How many basic desk and how many adjustable desk are sold at the break-even? In other words, what is the assumed sales mix?