After taking business classes, Bob, an avid cat-lover, decided to start selling unique supplies at trade shows.
Question:
After taking business classes, Bob, an avid cat-lover, decided to start selling unique supplies at trade shows. He has two products:
Product 1: "Throw-it"- a tennis ball thrower that will sell for $10.
Product 2: "Bake-time"- an automatic treat dispenser that releases a treat when the dog places his paw on the pedal. The treat dispenser will sell for $30.
Costs: Bob has hired an employee to work the trade show booths. The work contract is $1,000 per month plus a commission equal to 10% of revenue. Bob will also spend $500 per month on trade-show entry fees. Bob is purchasing the products from a supplier in Mexico. throw-its cost $1 each; bake-times cost $7 each. Shipping and handling on the throw-its will cost $2 each; Shipping and handling on the bake-times, which are heavier, will cost $8 each. The shipping and handling costs will be paid by bob, not the customer.
Assume bob expects to sell 200 throw-its and 100 bake-times during his first month of operations (June).
bobs financial goal is to earn an operating income of $8,000 per month. He believes volume may grow at a rate of 5% a month.
1) Complete the assumptions (blue box) based on the data about bobs business. Identify and list all variable costs separately and all fixed costs separately before finding the total for each type of cost.
2) Complete the Product Analysis (yellow boxes) assuming bob ONLY sells either Product #1 (throw-its) OR Product #2 (bake-times).
Check figures: B/E Product #1 = 250 units; B/E Product #2= 125 units
3) Complete the pro forma CM Income Statement for the month of June (green box). HINT: On product line income statements such as this, the fixed costs are only listed in the total column. Make sure you also show the totals for all other line items. Finally, calculate the overall WACM% for the company.
Check figure: Operating income = $900 WACM% = 48%
4) Calculate the weighted average contribution margin (WACM) per unit (in the orange box).
Check figure: WACM/unit = $8.00
5) Use the WACM/unit to calculate the TOTAL number of units needed to break even (TOTAL column in the first gray box). THEN, calculate the number of EACH type of product needed to break even. Finally, calculate the sales revenue associated with this volume for EACH product, and then the sales revenue to breakeven in total.
Check figures: B/E Product #1 = 125; B/E Product #2= 63
Vector Mechanics for Engineers Statics and Dynamics
ISBN: 978-0073212227
8th Edition
Authors: Ferdinand Beer, E. Russell Johnston, Jr., Elliot Eisenberg, William Clausen, David Mazurek, Phillip Cornwell