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Cincinnati Tool Company: Break Even Analysis

Cincinnati Tool Company (CTC) manufactures a line of electric garden tool that are sold in general hardware stores. The company's controller, Will Fulton, has just received the sales forecast for the coming year for CTC's three roducts: hedge clippers, weeders, and leaf blowers. CTC has experienced comsiderable variations in sales volumes and variable costs over the past two years, and Fulton believes the forecast should be carefully evaluated from a cost-volume-profit viewpoint. The preliminary budget information for 20x2 follows:

Weeders Hedge Clippers Leaf Blower
Unit Sales............................50,000 50,000 100,000
Unit selling price.......................$28 $36 $48
Variable manufacturing cost per unit.....13 12 25
Variable selling cost per unit...........5 4 6

For 20x2, CTC's fixed manufacturing overhead is budgeted at $2,000,000, and company's fixed selling and administrative expenses are forecasted to be $600,000. CTC has a tax rate of 40 percent.

Required:

1. Determine CTC's budgeted net income for 20x2
2. Assuming the sales mix remains as budgeted, determine how many units of each product CTC must sell in order to break even in 20x2.
3. Afer preparing the original estimates, management determined that its variable manufacturing cost of leaf lowers would increase by 20 percent, and the variable sellng cost of hedge clippers coul dbe expected to increase by $1.00 per unit. However, management has decided not to change the sellng price of either product. In addition, management hs learned that its leaf blower has been perceived as the best value on the market and it can expect to sell three times as many laf blowers as each of its other products. Under these circumstances, determine how many units of each product CTC would have to sell in order to break even in 20x2.

Solution Summary

Determine budgeted net income, and units of each product to be sold in order to break even.

$2.19