Reference no: EM132562541

Luke Corporation produces a variety of products, each within their own division. Last year, the managers at Luke developed and began marketing a new chewing gum, Bubbs, to sell in vending machines. The product, which sells for $5.75 per case, has not had the market success that managers expected and the company is considering dropping Bubbs.

The product-line income statement for the past 12 months follows:

Revenue $14,697,150

Costs Manufacturing costs$14,445,395

Allocated corporate costs (@5%) 734,858 15,180,253

Product-line margin $(483,103)

Allowance for tax (@20%) 96,620

Product-line profit (loss) $(386,483)

All products at Luke receive an allocation of corporate overhead costs, which is computed as 5 percent of product revenue. The 5 percent rate is computed based on the most recent year's corporate cost as a percentage of revenue.

Data on corporate costs and revenues for the past two years follow:

                                      Corporate Revenue                   Corporate Overhead Costs

Most recent year                 $116,750,000                           $5,837,500

Previous year                         $77,200,000                        4,935,760

Question 1: How many cases of Bubbs does Luke have to sell in order to break even on the product? (Round variable cost percentage to 2 decimal places, fixed costs to whole dollar amount and profit per case to 3 decimal places for intermediate calculations. Round your final answer up to the nearest whole unit.)

Question 2: Suppose Luke has a requirement that all products have to earn 5 percent of sales (before tax after corporate allocations) or they will be dropped. How many cases of Bubbs does Mr. Andre need to sell to avoid seeing Bubbs dropped? (Round your minimum price per case to 2 decimal places and do not round your other intermediate calculations. Round your final answer up to the nearest whole unit.)