What is perton''s breakeven point in total units

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Reference no: EM132000318

Problem - Perton Manufacturing produces three products: A, B, and C. Production information for the past two years is below:


Product A

Product B

Product C

Total

2012





Units sold

40,000

40,000

50,000

130,000

Sales

7,200,000

9,600,000

20,000,000

36,800,000

Cost of Goods Sold

3,000,000

1,800,000

15,000,000

19,800,000

Gross Profit

4,200,000

7,800,000

5,000,000

17,000,000

Selling & Other Exp.

2,000,000

3,600,000

3,000,000

8,600,000

Net Income b4 Tax

2,200,000

4,200,000

2,000,000

8,400,000






Labor Hours Used

160,000

120,000

100,000

380,000






2013





Units sold

50,000

60,000

60,000

170,000

Sales

9,000,000

14,400,000

24,000,000

47,400,000

Cost of Goods Sold

3,750,000

2,700,000

18,000,000

24,450,000

Gross Profit

5,250,000

11,700,000

6,000,000

22,950,000

Selling & Other Exp.

2,250,000

3,900,000

3,200,000

9,350,000

Net Income b4 Tax

3,000,000

7,800,000

2,800,000

13,600,000






Labor Hours Used

200,000

180,000

120,000

500,000

Their union contract limits the regular hours to be worked by each of Perton's 250 current employees to 40 hours per week for 50 weeks with 2 weeks of vacation. Overtime work must pay time-and-a-half, or $15/hr. and is limited to 20% of base hours per employee. As the above numbers show, the demand for Perton's products has increased and in 2013 their employees worked the maximum number of hours to avoid overtime but still left unfilled demand even though their plant has a total capacity of 240,000 combined units. Perton estimates that actual demand is:

Product

Demand

A

110,000 units

B

60,000 units

C

80,000 units

1. What is Perton's breakeven point in total units (of all products) if their sales mix remains constant?

2. If overtime is not allowed, how can Perton adjust their sales mix to best utilize their existing workers?

3. How would making this change affect their pre-tax profits?

4. Should Perton allow employees to work overtime? Why or why not?

Reference no: EM132000318

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