Reference no: EM132599737
Colorall has developed some new pastel colors, and would like to create larger boxes of markers to include more colors of markers in the box. Colorall would like to offer larger boxes of markers to their customers. In order to have a second box size option, Colorall would need to invest in a new packaging line. This would increase fixed overhead costs by $2,000,000 per month. All variable costs (materials, labor, overhead & marketing) would increase 2X (200%) because of the bigger boxes and additional markers put into each box. Market research estimates that 2,000,000 of the larger boxes of markers could be sold per month. Maximum capacity would remain 5,000,000 units per month.
Question A) If Colorall ONLY sells these new, larger boxes of markers, what is the minimum sales price per box they could accept and still have the same operating income (as question 1)? Show your results in a contribution margin income statement.
Question B) If Colorall can sell the larger boxes of markers for $9.50 each, what is the break-even point in units for the larger boxes of markers? (Show your calculation.)
Question C) If Colorall can sell the larger boxes of markers for $9.50 each, what is the break-even point in sales dollars for the larger boxes of markers? (Show your calculation.)
Volume 3,000,000
Sales 15,000,000
Variable cost 4
Variable cost total 12,000,000
Contribution Margin 3,000,000
Fixed cost 0.7
Fixed cost total 2,100,000
Operating Income -900,000
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