Bonavista Cribs manufactures baby cribs. It currently produces one model, the Surrey crib, and it is priced at $600. Variable manufacturing costs are $210 per unit and variable shipping costs are $60 per unit. Fixed costs are $2,574,000. In 2011, it sold 9,800 units of the Surrey crib. One of Bonavista’s customers, Dover Corporation, has asked if Bonavista could manufacture a new style of crib, the Shilo, for 2012. Dover will pay $350 for the Shilo. The variable costs to produce the new crib are estimated to be $180 per unit and Dover will pay for the shipping. Bonavista has sufficient manufacturing capacity and will not incur any additional fixed costs. Bonavista estimates that in 2012, it will sell 10,000 units of Surrey and 4,000 units of Shilo.
The president of Bonavista checked the impact of accepting the Dover order on the breakeven sales revenues for 2012 and was surprised to find that the dollar sales revenues required to break even using the sales mix for 2012 appeared to increase. He was not sure that his numbers were correct, but if they were, he felt inclined to reject the Dover order. He has asked for your advice.
REQUIRED
1. Calculate the breakeven point in units and sales dollars for 2011.
2. Calculate the breakeven point in units and sales dollars for 2012 at the expected sales mix.
3. Explain why the breakeven points in sales dollars calculated in requirements 1 and 2 are different.
4. What would you advise the president to do? Support your recommendations.