ABC Technologies Inc manufactures baseball bats The bats cur

ABC Technologies, Inc manufactures baseball bats. The bats currently sell for $65. The variable costs are $42 per bat to manufacture and the fixed costs are $90,000. Determine the following: a) Break even in units b) Break even in dollars c) How many units the company must sell if they wish to make $70,000. d) if the company were to raise the selling price by 10% and reduce variable cost by 5%, what would be the new break even (fixed cost remain at $90,000). e) The company spent an additional $14,000 for an extensive advertising campaign. If the advertising campaign resulted in additional sales of 570 units, was the campaign profitable? An actual dollar amount must be provided. Assume the original information included her (i.e. $65 selling price, $42 variable cost, and fixed costs of $90,000).

Solution

Answer to Part a)

Break Even (in Units) = Fixed Cost / Contribution Margin per Unit
Contribution Margin per Unit = Selling Price per Unit – Variable Cost per Unit
Contribution Margin per Unit = $65 - $42
Contribution Margin per Unit = $23

Break Even (in Units) = 90,000 / 23
Break Even (in Units) = 3,913 Units

Answer to Part b)

Break Even (in Dollars) = Break Even (in Units) * Selling Price per Unit
Break Even (in Dollars) = 3,913 * $65
Break Even (in Dollars) = $254,345

Answer to Part c)

Profit = Contribution Margin – Fixed Cost
Let the Units sold be “x” to earn a profit of $70,000

$70,000 = ($23 * x) - $90,000
$160,000 = 23 * x
x = 6,957 Units

A total number of 6,957 units must be sold to earn a profit of $70,000.

Answer to Part d)

Expected Selling Price = $65 + ($65 * 10%) = $71.50
Expected Variable Cost per unit = $42 – ($42 * 5%) = $39.90
Expected Contribution Cost per unit = $71.50 - $39.90 = $31.60

Break Even (in Units) = Fixed Cost / Contribution Margin per Unit
Break Even (in Units) = 90,000 / 31.60
Break Even (in Units) = 2,848 Units