Johnson Company manufactures a single product called the Gripper. Patients, under the direction of physiotherapists, use the Gripper to restore, to the extent possible, normal hand functions. The Gripper has the following per-unit revenue and costs:

Johnson Company has fixed manufacturing costs of $1 million per year and fixed general, and administrative expenses of $500,000 per year. 

Required

 (a)How many Grippers must Johnson Company sell in order to break even? 

(b)How many Grippers must Johnson Company sell in order to earn a target profit of $300,000? 

(c) The Johnson Company sales manager has come up with an idea for a new product called the Gripper Plus. The sales manager is projecting a sales mix of 300,000 units of the Gripper and 100,000 units of the Gripper Plus. The Gripper Plus has the following per-unit revenue and costs:  

If Johnson Company faces a tax rate of 25% and has an after-tax target income of $187,500, how many units of each product must it sell, assuming the sales mix remains constant?

Transcribed Image Text:

Revenue.... Direct materials cost.. Direct labor cost... Variable overhead Contribution margin per unit..... $20 7 4 3 $6