Repeat Company is a new company in a competitive economy. Last year, the company had the following
Question:
Repeat Company is a new company in a competitive economy. Last year, the company had the following financial results:
Sales (units) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000
Price per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . $?
Unit variable costs:
Variable manufacturing cost . . . . . . . . . . . . . $4.25
Variable selling expenses . . . . . . . . . . . . . . . . $2.25
Fixed costs:
Manufacturing overhead . . . . . . . . . . . . . . . . $100,000
Sales salaries . . . . . . . . . . . . . . . . . . . . . . . . . . $125,000
Administrative salaries . . . . . . . . . . . . . . . . . $50,000
Required:
1. Calculate the break-even price for the company. Assume break-even sales of 50,000 units.
2. For the year just ended, the margin of safety was $(158,088). To improve profitability, senior management has proposed that production personnel should undergo additional training. As a result of this additional training, variable manufacturing cost per unit is expected to decrease by $0.75 and sales units to increase by 20%. Assuming that costs behave as expected and that the selling price remains at the level you calculated above in part (1), what is the maximum amount the company can pay for the training program in order to break even?
Step by Step Answer:
Introduction to Managerial Accounting
ISBN: 978-1259103261
4th Canadian edition
Authors: Peter C. Brewer, Ray H Garrison, Eric Noreen, Suresh Kalagnanam, Ganesh Vaidyanathan