Cheryl Montoya picked up the phone and called her boss Wes C

Cheryl Montoya picked up the phone and called her boss, Wes Chan, the vice president of marketing at Piedmont Fasteners Corporation: \"Wes, I\'m not sure how to go about answering the questions that came up at the meeting with the president yesterday What\'s the problem? The president wanted to know the break-even point for each of the company\'s products, but I am having trouble figuring them out. I\'m sure you can handle it, Cheryl. And, by the way, I need your analysis on my desk tomorrow morning at 8:00 sharp in time for the follow-up meeting at 9:00 I\'m sure you can handle it, Cheryl. And, by the way, I need your analysis on my desk tomorrow morning at 8:00 sharp in time for the follow-up meeting at 9:00.\" Normal annual sales vclume Unit selling price Metal 203,000 $1.60 1.80 1.40 Velcro 109,000 Nylon 304,000 ariable expense per unit $ 80 S0 1.10 Total fixed expenses are $268,000 per year. All three products are sold in highly competitive markets, so the company is unable to raise its prices without losing unacceptable numbers of customers. The company has an extremely effective lean production system, so there are no beginning or ending work in process or finished goods inventories. Required 1. What is the company\'s overall break-even point in dollar sales? (Round CM ratio to 4 decimal places and final answer to the nearest whole dollar.) in dollar sales 2. Of the total fixed expenses of $268,000, $23,680 could be avoided if the Velcro product is dropped, $85,500 if the Metal product is dropped, and $60,600 if the Nylon product is dropped. The remaining fixed expenses of S98,220 consist of common fixed expenses such as administrative salaries and rent on the factory building that could be avoided only by going out of business entirely. a. What is the break-even point in unit sales for each product? (Do not round intermediate calculations.) Velcro Metal Nylon Break-even point in unit sales b. If the company sells exactly the break-even quantity of each product, what will be the overall profit of the company? (Do not round intermediate calculations.)

Solution

1). Overall Break Even Point in Dollar :-

Total Sales price per unit = ($1.6 + $1.80 + $1.40) = $4.80

Total Variable Cost per unit = ($0.80 + $1.30 + $1.10) = $3.2

Total Contribution per unit = Total Sales - Total Variable Cost

= $4.80 - $3.2

= $1.6

Total Contribution Margin = $1.6 / $4.8 = 0.33333 or 33.333%

Overall Break Even Point in Doller = Total Fixed Cost / Total Contribution Margin

= $268000 / 0.333333

= $804000

2)a. Break Even Point in units sales for each product :-

b). Overall Profit at Break even Quantity :-

Particulars	Vetcro	Metal	Nylon
Sales price per unit	$1.60	$1.80	$1.40
Less : Variable Cost per unit	($0.80)	($1.30)	($1.10)
Contribution per unit	$0.80	$0.50	$0.30
Fixed Cost	$23680	$85500	$60600
Break even point in units(Fixed cost/Contribution per unit)	29600	171000	202000