Team Exercise 2

Supply the missing data in each independent case for Jennifer Associates

		Case A		Case B		Case C		Case D		Case E
Unit sales		500		200		?		?		?
Sales revenue		$20,000		?		?		$75,000		$35,000
Variable cost per unit		$35		$2.5		$17.50		?		?
Contribution Margin		?		$1,500		?		?		$10,500
Fixed costs		$5,500		?		$65,000		?		?
Operating income		?		-$250		?		?		?
Unit contribution margin		?		?		?		$4		$3
Break-even point (units)		?		?		8,667		12,500		?
Margin of Safety		?		?		333		12,500		1,000

Chandler Manufacturing Company currently buys 25,000 units of a part used to manufacture its product at $69 per unit. The supplier recently informed the companys management that a 20 percent increase will take effect next year. Chandler has some additional space and could produce the units for the following per-unit costs (based on 25,000 units):

Direct materials	$30
Direct labor	$25
Variable manufacturing overhead	$25

If Chandler purchases the units from the supplier, Chandler can rent out the plant for $45,000 per year.

Should Chandler Company buy the part externally or make it internally? Use differential analysis to support your answer.

GTO Mfg., Inc. manufactures a single product (A) with the following full unit costs at a volume of 2,000 units:

Direct materials	$ 900
Direct labor	360
Manufacturing overhead *	600
Selling expenses (50% variable)	300
Administrative expenses **	280
Total per unit	$2,440

*Note that per unit manufacturing overhead costs include $840,000 fixed costs

**Note that per unit administrative expenses include $500,000 fixed costs.

A company recently approached GTO Mfg.s management about buying 350 units of product A. GTO Mfg. currently sells its product to dealers for $2,600 per unit. Capacity is sufficient to produce the extra 350 units. No selling expenses would be incurred on the special order.

What is the minimum price GTO Mfg. should charge just to break even on the special order?

Comparative 2014 and 2015 Income Statements for Alliance Inc. are as follows:

Alliance Inc.

Comparative Income Statements

For Years Ending December 31, 2014 and 2015

2014 2015

Unit Sales 10500 13000

Sales Revenue $94,500.00 $117,000.00

Expenses ($69,000.00) ($84,000.00)

Profit (loss) $25,500.00 $33,000.00

A. Determine the break-even point in units

B. Determine the unit sales volume required to earn a profit of $15,000