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# Breakeven Analysis and Planning Future Sales

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Breakeven Analysis

Prepare a breakeven analysis and a C-V-P analysis planning future sales using the information below. Be sure to show your work in (Word or Excel document).

Breakeven Analysis and Planning Future Sales

Write Company has a maximum capacity of 200,000 units per year. Variable manufacturing costs are \$12 per unit. Fixed overhead is \$600,000 per year. Variable selling and administrative costs are \$5 per unit, and fixed selling and administrative costs are \$300,000 per year. The current sales price is \$23 per unit.

Required

1. What is the breakeven point in (a) sales units and (b) sales dollars?
2. How many units must Write Company sell to earn a profit of \$240,000 per year?
3. A strike at one of the company's major suppliers has caused a shortage of materials, so the current year's production and sales are limited to 160,000 units. To partially offset the effect of the reduced sales on profit, management is planning to reduce fixed costs to \$841,000. Variable cost per unit is the same as last year. The company has already sold 30,000 units at the regular selling price of \$23 per unit.
◦a. What amount of fixed costs was covered by the total contribution margin of the first 30,000 units sold?
◦b. What contribution margin per unit will be needed on the remaining 130,000 units to cover the remaining fixed costs and to earn a profit of \$210,000 this year?

Do not forget to show your work in (Word or Excel document).

#### Solution Preview

See the attached file. Thanks

Prepare breakeven analysis and a C-V-P analysis planning future sales using the information below, and be sure to show your work in (Word or Excel document).
Breakeven Analysis and Planning Future Sales
Write Company has a maximum capacity of 200,000 units per year. Variable manufacturing costs are \$12 per unit. Fixed overhead is \$600,000 per year. Variable selling and administrative costs are \$5 per unit, and fixed selling and administrative costs are \$300,000 per year. The current sales price is \$23 per unit.

Required
1. What is the breakeven point in (a) sales units and (b) sales ...

#### Solution Summary

This solution shows how to calculate the BEP in units and dollar sales. It also shows the required number of units for desired profit levels.

\$2.19

## Financial Planning

Objective: Describe the relationship between strategic planning and financial planning.

5. Which of the following statements is true?
a. The future value of an annuity would be greater if funds are invested at the beginning of each period instead of at the end of each period.
b. An annuity is a series of equal payments that are made, or received, forever.
c. The effective annual rate (APR) of a loan is higher the less frequently payments are made.
d. The future value of an annuity would be greater if funds are invested at the end of each period rather than at the beginning of each period.

Objective: Prepare a cash budget.

6. A company collects 60% of its sales during the month of the sale, 30% one month after the sale, and 10% two months after the sale. The company expects sales of \$10,000 in August, \$20,000 in September, \$30,000 in October, and \$40,000 in November. How much money is expected to be collected in October?
a. \$25,000
b. \$15,000
c. \$35,000
d. None of the above

Objective: Perform a break-even analysis.

7. Potential applications of the break-even model include:
a. replacement for time-adjusted capital budgeting techniques.
b. pricing policy.
c. optimizing the cash-marketable securities position of a firm.
d. none of these

Objective: Calculate present value and future value of cash flows.

8. If you invest \$750 every six months at 8% compounded semi-annually, how much would you accumulate at the end of 10 years?
a. \$10,065
b \$10,193
c. \$22,334
d. \$21,731

Week Three: Working Capital Management and Capital Budgeting

Objective: Evaluate effective working capital management techniques.

9. According to the hedging principle, permanent assets should be financed with _______ liabilities.
a. permanent
b. spontaneous
c. current
d. fixed

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