# Accounting: Break-Even Analysis

Please complete in Excel.

The Circumstance

The president of your company is grateful for your quick reference guide on costs. Now she has a different request.

As she sets the company direction she needs help refining sales and production targets for next year. She has gathered the following information:

The company, a golf club manufacturer, sells six products: drivers, woods, sets of irons, hybrids, wedges, and putters.

The slowest seller is putters but there is a predictable sales mix. For each putter sold the following are sold: 2 drivers, 4 woods, 3 sets of irons, 6 hybrids, and 5 wedges.

The MSRP for each is as follows:

Putter $129

Driver $299

Woods $149

Set of irons $699

Hybrids $ 99

Wedges $ 79

Variable costs run consistently at 30% of the above MSRP

Fixed costs currently run $480,000 per year

Assignment

Build a spreadsheet that allows her to change any of the following and immediately see the impact of those changes on both the required quantity of clubs and company profit. Do not show her the details (i.e. put the details and calculations on a separate worksheet).

Sales mix

Fixed costs

Manufacturing cost percent of current MSRP

Retail on anything in the sales mix

Before tax profit goal

Restrictions and Advice

There is no such thing a half a club or part of a mix. Your work should always work in entire mixes, therefore you will not exactly hit a goal number; rather, you will exceed it by a small amount. In other words, your profit numbers will always jump in the increment of the full profit on your mix.

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#### Solution Summary

The problem set deals with issues under accounting and determining the break-even with multiple products.

Managerial Accounting: Break Even Point Analysis

Please see attachment.

MSW:4-1

Cost-volume-profit analysis. Patton Company produces one type of sunglasses with the following costs and revenues for the year:

Total Revenues $6,000,000

Total Fixed Costs $2,000,000

Total Variable Costs $2,000,000

Total Quantity Produced and Sold 100,000 Units

Required:

a. What is the selling price per unit?

b. What is the variable cost per unit?

c. What is the contribution margin per unit?

d. What is the break-even point in units?

e. Assume an income-tax rate of 40 percent. Assuming a relevant range, what quantity of units is required for Patton Company to make an after-tax operating profit of $6,000,000 for the year?

MSW:4-2

Break-even and target profits; volume defined in sales dollars. The manager of Hsu's Carryout Express estimates operating costs for the year will total $230,000 for fixed costs.

Required:

a. Find the break-even point in sales dollars with a contribution margin ratio of 40 percent.

b. Find the break-even point in sales dollars with a contribution margin ratio of 20 percent.

c. Find the sales dollars required with a contribution margin ratio of 50 percent to generate a profit of $150,000.

MSW:4-3

CVP analysis with step costs. Techniques Company has one product: customized thumb drives with logos for various businesses. The sales price of $18 remains constant per unit regardless of volume, as does the variable cost of $10 per unit. The company is considering operating at one of the following three monthly levels of operations:

Volume Range

(production and sales) Total

Fixed Costs Increase in Fixed Costs from

Previous Level

Level 1 0-5,000 $ 30,000 --

Level 2 5,001-15,000 50,000 $20,000

Level 3 15,001-30,000 80,000 30,000

Required:

a. Calculate the break-even point(s) in units.

b. If the company can sell everything it makes, should it operate at level 1, level 2, or level 3? Support your answer.

MSW:4-4 Genia Enterprises, Inc. has the capacity to produce 12,000 units per year. Expected operations for the year are

Sales (10,000 units @ $20) $200,000

Manufacturing costs:

Variable $8 per unit

Fixed $40,000

Marketing and administrative costs:

Variable $3 per unit

Fixed $20,000

REQUIRED:

a. What is the expected level of operating profits?

b. Should the company accept a special order for 1,000 units at a selling price of $15 if variable marketing expenses associated with this special order would be $2 per unit? Calculate the incremental profits if the order is accepted.

c. Suppose the company received a special order for 3,000 units at a selling price of $15 with no variable marketing expenses. Calculate the impact on operating profits.