Waterways Continuing Problem 22 Vice President for Sales and

Waterways Continuing Problem 22

Vice President for Sales and Marketing Sam Totter is trying to plan for the coming year in terms of production needs to meet the sales demand. He is also trying to determine ways in which the company’s profits might be increased in the coming year.

Waterways markets a simple water control and timer that it mass-produces. During 2016, the company sold 696,000 units at an average selling price of per solution $4.20 per unit. The variable expenses were $1,900,080, and the fixed expenses were $683,256.

Please help me answer the following questions:

What is the product\'s contribution margin ratio? (Round ratio to O decimal places, eg, 25%.) Contribution margin ratio What is the company\'s break-even point in units and in dollars for this product? Break-even point in units Break even point in dolars units What is the margn of safety, both in dollars and as a ratio? (Round ratio to 0 decimal places, eg. 2596) Margin of safety in dollars s Margin of safety ratio r management wanted to ncrease its income from this product by 10%, how many additional units would have to be sold to reach this income level? Waterways would have to sell an additional units

Solution

As per policy, only four parts of a question is allowed to answer at a time, so answering 1-5 here :

	Total	%age	Per unit
Sales (696000 units)	2923200	100	4.2
VC	1900080	65	2.73
Contri	1023120	35	1.47
FC	683256
NOI	339864
1) Products contribution margin ratio = 1023120/2923200 = 35%
2) Company\'s BEP (units) = FC / contri per unit = 683256 / 1.47 = 464800
Company\'s BEP ($) = FC / contri margin = 683256 / 35% = $1952160
3) MOS (in $)= Sales - Sales of BE = 2923200 - 1952160 = $971040
MOS (in ratio)= Sales at BE / Sales = 1952160 / 2923200 = 66.78%
4) Additional Desired profit = 339864 * 10% = $33986
Additional units to be sold = 33986 / 1.47 = 23120 units
5)increase in sold units 51000, increase in income = 51000*$1.47 = $74970