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Bruggs & Strutton Company

The Bruggs & Strutton Company manufactures an engine for carpet cleaners called the "Snooper." Cost and revenue data for the "Snooper" are given below, based on sales of 40,000 units.

Sales $1,600,000
Less: Cost of goods sold 1,120,000
Gross margin $ 480,000
Less: Operating expenses 100,000
Operating income before taxes $ 380,000

Cost of goods sold consists of $800,000 of variable costs and $320,000 of fixed costs. Operating expenses consist of $40,000 of variable costs and $60,000 of fixed costs.

Required:
A. Calculate the break-even point in units and sales dollars.
B. Calculate the safety margin.
C. Bruggs & Strutton received an order for 6,000 units at a price of $25.00. There will be no increase in fixed costs, but variable costs will be reduced by $0.54 per unit because of cheaper packaging. Determine the projected increase or decrease in profit from the order.
D. Bruggs also received an order for 2,500 units at $29 per unit. If packaging costs will not be reduced on this order and only one order ("C" or "D") can be accepted, which order is more attractive?

Solution Preview

The Bruggs & Strutton Company manufactures an engine for carpet cleaners called the "Snooper."
Cost and revenue data for the "Snooper" are given below, based on sales of 40,000 units.

Sales 1,600,000
Less: Cost of goods sold 1,120,000
Gross margin $ 480,000
Less: Operating expenses 100,000
Operating income before taxes $ 380,000

Cost of goods sold consists of $800,000 of variable costs and $320,000 of fixed costs.
Operating expenses consist of $40,000 of variable costs and $60,000 of fixed costs.

Required:
A. Calculate the break-even point in units and sales ...

Solution Summary

This solution is comprised of a detailed explanation to calculate the break-even point in units and sales dollars and the safety margin, determine the projected increase or decrease in profit from the order, and answer which order is more attractive.

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