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    Case Study: Bremen Electronics-Breakeven Analysis

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    1) What would breakeven sales volume be, assuming a ratio of two RC1s sold for each RC2 sold
    2) What level of sales would provide the target profit specified by the parent company of $210,000 for the year? (Assume that they sell all that they produce)
    3) What would the manufacturing cost per unit be if they made and sold only 8,000 of RC1 and 4,000 of RC2s per month? In that case what would the profit be?
    4) What would be the profit if they sold 8,000 RC1 and 4,000 RC2 (as in question 3) but produced 10,000 of RC1s and 5,000 of RC2s , putting the unsold units in the finished goods inventory?

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    Proportion = 2/3 1/3
    RC1 RC2
    Selling price $20.00 $23.00

    Variable Cost
    Parts $5.50 =55000/10000 $6.40 =32000/5000
    Direct Labor $3.50 =35000/10001 $4.20 =21000/5001
    Total Variable cost= $9.00 $10.60

    Contribution per unit= $11.00 =$20.-$9. $12.40 =$23.-$10.6

    Contribution for the sales mix= $11.47 =$11.* 2/3 +$12.4* 1/3

    Manufacturing overhead= $112,000
    Selling and administration= $40,000
    Total Fixed expense= $152,000

    Break even units= 13252 =$152000./$11.47

    out of which
    RC1= 2/3 = 8,835
    RC2= 1/3 = 4,417
    13,252

    Check:

    RC1 RC2 Total
    No of units 8,835 4,417 13,252
    Sales revenue= $176,700 =$20.*8835 $101,591 =$23.*4417 278,291

    Variable cost:
    Parts $48,593 =$5.5*8835 $28,269 =$6.4*4417 76,862
    Direct Labor $30,923 =$3.5*8835 $18,551 =$4.2*4417 49,474
    $79,516 $46,820 126,336

    Contribution 151,955

    Manufacturing Overhead= $112,000
    Selling and administration $40,000
    Total fixed cost= $152,000

    Profit= -$45
    (The profit is coming out to be -$45
    It should have been $ 0; the difference is because of rounding off error)
    At breakeven point profit=0

    Contribution margin of the sales mix= $11.47

    Manufacturing Overhead= $112,000
    Selling and administration $40,000
    Total fixed cost= $152,000

    Profit for the ...

    Solution Summary

    Answers questions on breakeven analysis from Case Study: Bremen Electronics.

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