Frenchie Co. manufactures and sells “Fishies”, a useful and novel food prep utensil. “Fishies” are sold across the US and Canada in several different retail stores at a price of $22 per unit. In 2023, Frenchie manufactured and sold at their normal volume level. The 2023 income statement for Frenchie is provided below:

Revenue $2,750,000

-Direct Materials 937,500

-Direct Labor 375,000

-Variable Manufacturing Overhead 187,500

-Variable Selling and Admin 212,500

Total Contribution Margin 1,037,500

-Fixed Manufacturing Overhead 430,000

-Fixed Selling and Admin 220,000

Operating (pretax) Income 387,500

1. Compute the following:

What is Frenchie’s breakeven point in annual sales units?

Assume an income tax rate of 30% of pretax/operating income, at what level of sales in units would Frenchie achieve an annual after-tax profit (aka net income) of $1 million?

If Frenchie expects 2024 sales volume to be 10% higher than 2023 sales volume, then what would Frenchie’s pretax operating income level be in 2024?

2. Frenchie is considering a new advertising campaign. This new campaign would increase their Fixed Selling and Admin expenses by 50% and their per unit Variable Selling and Admin costs per unit by 30%. This move is expected to increase sales volume (relative to 2023 volume) by 20%. Should Frenchie do this? How much is the impact on pretax operating income?

3. Frenchie recently received an offer from an outside manufacturing firm, BuildIt. The offer is for BuildIt to produce and ship directly to Frenchie’s customers each unit that Frenchie sells. If the offer is accepted, Frenchie’s total fixed manufacturing overhead costs would decrease by 40%. Frenchie’s nonmanufacturing costs would be unaffected by the proposal except for a reduction in its variable selling and admin costs of $1 per unit.

Assume that BuildIt’s proposed price to Frenchie is $18 per unit. Compare the alternatives of Frenchie making versus buying the units at Frenchie’s normal volume level. Should Frenchie accept the proposal from BuildIt? How much is the operating income impact of doing this in 2024, assuming volume is unaffected?

At what volume level is Frenchie indifferent between making or buying (from BuildIt), given BuildIt’s proposed price of $18 per unit?

Answer rating: 100% (QA)

Question 1 Compute the following 11 What is Frenchies breakeven point in annual sales units Using the breakeven formula textBreakeven Point in units fracFixed CoststextSelling Price per Unit textVaria... View the full answer