Reference no: EM132468760

How to Calculate the Break-even and quantities for the product lines? Please also explain how the Break-even is arrived at."

1. For your first assignment, management has provided the following revenue and cost information:

                       High-End Set                      Economic Set

Sales Price             $3,500 per unit           $1,000 per unit

Labor                    $875 per unit               $250 per unit

Material                $1,400 per unit             $300 per unit

Direct Fixed Cost   $25,000 per month         $16,500 per month

Allocated Fixed Cost $85,000 per month        $85,000 per month

1. Break-even quantities for each product line

2. Break-even quantities to earn $500,000 per year margin on the high-end line (at the current sales price)

3. Break-even quantities to earn $300,000 per year margin on the economical line (at the current sales price)

They expect the product lines to fully absorb the costs allocated to them.

Once you have determined these amounts, they have asked that you:

1. present the information
2. describe how you performed your calculations
3. and explain what the results mean

2. Later, the company is considering the purchase of machinery and equipment to set up a line to produce a combination washer-dryer. They have given you the following information to analyze the project on a 5-year timeline:

1. Initial cash outlay is $150,000, no residual value.
2. Sales price is expected to be $2,250 per unit, with $595 per unit in labor expense and $795 per unit in materials.
3. Direct fixed costs are estimated to run $20,750 per month.
4. Cost of capital is 8%, and the required rate of return is 10%.
5. They will incur all operational costs in Year 1, though sales are expected to be 55% of break-even.
6. Break-even (considering only direct fixed costs) is expected to occur in Year 2.
7. Variable costs will increase 2% each year, starting in Year 3.
8. Sales are estimated to grow by 10%, 15%, and 20% for years 3 - 5.

They have asked you to calculate:

1. The product's contribution margin
2. Break-even quantity
3. NPV
4. IRR

Question 1: Once you have determined these amounts, they have asked that you present the information, describe how you performed your calculations, and explain what the results mean.

After you have completed the calculations and presented your work, management makes the investment.

Question 2: Explain how the project analyses do or do not support this decision.

Question 3: In either case, what are the factors that should have been considered in management's decision?

3. After the combo washer-dryer has been in production for a few years, you are asked to perform another analysis. You must evaluate the performance of all three product lines as management is concerned with the viability of the washer-dryer combination product. They provide you with the latest annual information by product:

                            High-End Set         Economical Set            W/D Combo              Total

Sales                        $4,700,000              $4,060,000              $880,000            $9,640,000

Labor                        $(1,250,00)              $(1,015,000)             $(235,000)      $(2,500,000)

Material                    $(1,885,000)               $(1,220,000)              $(315,000)      $(3,420,000)

Direct Fixed Costs        $(325,000)                    $(220,000)             $(250,000)         $(795,000)

Allocated Fixed Costs    $(650,000)                      $(650,000)              $(650,000)      $(1,950,000)

Net Income                   $590,000                     $955,000                    $(570,000)           $975,000

Question 4: You are asked to perform an analysis to determine whether to drop or keep the washer-dryer combination product and present your findings, including the steps taken to make your determination. You are also asked to evaluate if the costing methodology is appropriate and, if not, recommend alternative methods.

Question 5:Please describe the circumstances of the case study and make the required recommendations. Explain your approaches to the problems, perform relevant calculations and analyses, and justify your recommendations. Evaluate the results and explain what each calculated value means. Ensure your work and conclusions are thoroughly supported.

Superior presentations will:

1. Describe the circumstances.
2. Perform all calculations correctly.
3. Articulate how the calculations were performed.
4. Evaluate the computations and explain their meanings.
5. Make recommendations, supported by well-thought-out rationale and considering various factors that could impact the recommendations.