Question

Yilan Company is considering adding a new product. The cost accountant has provided the following data.

Expected variable cost of manufacturing $ 50 per unit
Expected annual fixed manufacturing costs $ 92,000
The administrative vice president has provided the following estimates.
Expected sales commission $ 4 per unit
Expected annual fixed administrative costs $ 48,000
The manager has decided that any new product must at least break even in the first year.
Required:
Use the equation method and consider each requirement separately.
a. If the sales price is set at $74, how many units must Yilan sell to break even?
b. Yilan estimates that sales will probably be 10,000 units. What sales price per unit will allow the company to break even?
c. Yilan has decided to advertise the product heavily and has set the sales price at $78. If sales are 8,000 units, how much can the company spend on advertising and still break even?

Answer 1

Following are the responses to the given choices:

Step-by-step explanation:

In point a:

`\text{Break even point} ( in \ units ) =(Fixed\ cost)/(contribution)`

`=(140000)/(20)\\\\=7000 \ units`

In point b:

`\text{Breakeven point selling prices = unit variable costs + unit fixed cost of 10,000 units}`

`=\$ 54 +\$ 14 \\\\= \$ 68`

`\text{Breakeven point selling prices = unit variable costs + unit fixed cost of 10,000 units}`

`=\$54 +\$ 14\\\\=\$ 68`

Claim of work

Fixed unit costs For sale It is 4,000 units likely

`\text{Units Fixed costs} = (Total \ Fixed- cost)/(Units \ Fixed-costs)`

`= (\$140,000)/(10,000)\\\\=\$14`

In point C:

Sales(
`8,000 \ units * 78`)
`\$624,000`

Less : Cost of Variable (
`8000* 54`)
`\$432000`

Contribution
`\$192,000`

Less: Fixed cost
`\$140,000`

advertising balance
`\$52,000`

They realize there's no benefit and thus no loss at breakeven pomt.