Question

The powerclean company manufactures an engine for carpet cleaners called the "snooper." budgeted cost and revenue data for the "snooper" are given below, based on sales of 39,000 units. sales revenue $ 1,950,000 less: cost of goods sold 1,420,000 gross margin $ 530,000 less: operating expenses 140,000 income $ 390,000 cost of goods sold consists of $730,000 of variable costs and $690,000 of fixed costs. operating expenses consist of $50,000 of variable costs and $90,000 of fixed costs. required: calculate the break-even point in units and sales dollars. calculate the safety margin (in dollars). powerclean received an order for 6,000 units at a price of $35. there will be no increase in fixed costs, but variable costs will be reduced by $0.60 per unit because of cheaper packaging. determine the projected increase or decrease in profit from the order, assuming there are no opportunity costs.

Answer 1

The question involves calculating the break-even point in units and sales dollars, determining the safety margin, and projecting the profit change due to a special order, which are essential concepts in business finance for strategic decision-making.

Step-by-step explanation:

The subject of the question pertains to break-even analysis, safety margin calculation, and profit projection in the context of a business scenario involving the manufacturing and selling of a product. Break-even analysis is crucial in business finance to determine when a company will be able to cover all its expenses and start making a profit. Safety margin refers to the difference between the actual or projected sales and the break-even sales, representing the cushion a company has before incurring a loss. Real-world business decisions often involve such calculations to assess whether taking on additional orders is financially beneficial.

Calculating the break-even point requires finding the level of sales where total revenue equals total costs, which can be done by dividing the fixed costs by the contribution margin per unit. To find the safety margin, we need to subtract the break-even sales from the actual or projected sales. Profit projections involve analyzing the change in revenues and costs due to additional orders or changes in business operations.