# Question

All Honors Industries is considering a new product for its Trophy Division. The product, which would feature an alligator, is expected to have global market appeal and to become the mascot for many high school and university athletic teams. Expected variable unit costs are as follows: direct materials, $18.50; direct labor, $4.25; production supplies, $1.10; selling costs, $2.80; and other, $1.95. Annual fixed costs are depreciation, building, and equipment, $36,000; advertising, $45,000; and other, $11,400. Plans are to sell the product for $55.

Required

1. Using the contribution margin approach, compute the number of units the company must sell to

(a) Break even

(b) Earn a profit of $70,224.

2. Using the same data, compute the number of units that must be sold to earn a profit of $139,520 if advertising costs rise by $40,000.

3. Using the original information and sales of 10,000 units, compute the selling price the company must use to make a profit of $131,600. (Hint: Calculate contribution margin per unit first.)

4. According to the vice president of marketing, Flora Albert, the most optimistic annual sales estimate for the product would be 15,000 units, and the highest competitive selling price the company can charge is $52 per unit. How much more can be spent on fixed advertising costs if the selling price is $52, the variable costs cannot be reduced, and the targeted profit for 15,000 unit sales is $251,000?

Required

1. Using the contribution margin approach, compute the number of units the company must sell to

(a) Break even

(b) Earn a profit of $70,224.

2. Using the same data, compute the number of units that must be sold to earn a profit of $139,520 if advertising costs rise by $40,000.

3. Using the original information and sales of 10,000 units, compute the selling price the company must use to make a profit of $131,600. (Hint: Calculate contribution margin per unit first.)

4. According to the vice president of marketing, Flora Albert, the most optimistic annual sales estimate for the product would be 15,000 units, and the highest competitive selling price the company can charge is $52 per unit. How much more can be spent on fixed advertising costs if the selling price is $52, the variable costs cannot be reduced, and the targeted profit for 15,000 unit sales is $251,000?

## Answer to relevant Questions

Marina Company has a maximum capacity of 200,000 units per year. Variable manufacturing costs are $12 per unit. Fixed overhead is $600,000 per year. Variable selling and administrative costs are $5 per unit, and fixed ...Bar Company has a maximum capacity of 500,000 units per year. Variable manufacturing costs are $25 per unit. Fixed overhead is $900,000 per year. Variable selling and administrative costs are $5 per unit, and fixed selling ...Why is the difference between a static budget and a continuous budget important in understanding budgets?The projections of direct materials purchases that follow are for Creek Corporation.The company pays for 60 percent of purchases on account in the month of purchase and 40 percent in the month following the purchase. ...Spartan Corporation projects the dollar value of the company’s cost of goods sold to be $160,000 in June, $169,000 in July, and $154,000 in August. The dollar value of its desired ending inventory is 25 percent of the ...Post your question

0