Luke Corporation produces a variety of products, each within their own division. Last year, the managers at Luke developed and began marketing a new chewing gum, Bubbs, to sell in vending machines. The product, which sells for $5.75 per case, has not had the market success that managers expected and the company is considering dropping Bubbs.

The product-line income statement for the past 12 months follows:

Revenue$14,697,150CostsManufacturing costs$14,445,395Allocated corporate costs (@5%)734,85815,180,253Product-line margin$(483,103)Allowance for tax (@20%)96,620Product-line profit (loss)$(386,483)

All products at Luke receive an allocation of corporate overhead costs, which is computed as 5 percent of product revenue. The 5 percent rate is computed based on the most recent year's corporate cost as a percentage of revenue. Data on corporate costs and revenues for the past two years follow:

Corporate Revenue Corporate Overhead Costs Most recent year$116,750,000$5,837,500Previous year$77,200,0004,935,760

Roy O. Andre, the product manager for Bubbs, is concerned about whether the product will be dropped by the company and has employed you as a financial consultant to help with some analysis. In addition to the information given above, Mr. Andre provides you with the following data on product costs for Bubbs:

 

Month Cases Production Costs1217,000$1,156,8402222,2001,178,3403219,9001,186,9934238,0001,202,5355229,9501,204,8396247,0001,225,6857225,2501,200,7118252,2001,243,7869243,8001,242,23810257,6501,254,33711255,2001,258,77212264,2001,289,463

 

b. How many cases of Bubbs does Luke have to sell in order to break even on the product?(Round variable cost percentage to 2 decimal places, fixed costs to whole dollar amount and profit per case to 3 decimal places for intermediate calculations. Round your final answer up to the nearest whole unit.)

Number of cases??

suppose Luke has a requirement that all products have to earn 5 percent of sales (before tax after corporate allocations) or they will be dropped. How many cases of Bubbs does Mr. Andre need to sell to avoid seeing Bubbs dropped?(Round your minimum price per case to 2 decimal places and do not round your other intermediate calculations.Round your final answer up to the nearest whole unit.) 

 

required :

Number of cases??

Answer rating: 100% (QA)

a To calculate the breakeven point for Bubbs we need to determine the total fixed costs and the vari... View the full answer