Reference no: EM132910039

Question - Bahrain Company manufactures toys, which it sells to retailers. Its production department has suggested a new product, that it believes will have good sales. Expected variable costs per unit are as follows:

Costs amount

Direct Materials $5.25

Direct labor $2.63

Supplies-Plant $0.42

Selling costs $1.1

Other $2.6

The following are fixed costs: depreciation, $28,000; promotion $30,000; and other, $3,100. The expected selling price is $25 per unit and sales volume in units is 7000 units.

Required -

1- Compute

a- The number of units the company must sell to break even. What does this number mean?

b- The margin of safety in dollars. What is the meaning of your answer?

2- Using the same data, find the number of units that must be sold to earn a profit of $80,000 if promotion costs increase by $4,500.

3- Using the original data and sales of 25,000 units, compute the selling price to earn a profit of $150,000.

4- If all fixed costs increased by 20% and management wanted to maintain the original break-even point in units, find the new selling price per unit assuming no change on the variable cost per unit.

5- According to the vice president of marketing, if the price per unit is reduced and promotion costs is increased, the best annual sales estimate is 35,000 units. How much more can be spent on fixed promotion costs if the selling price is reduced to $18.00 per unit, the variable costs cannot be reduced, and the targeted profit for sales of 35,000 units is $140,000?