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JetSet Travel, Inc. (JTI)

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Scenario:
You have been hired as a consultant for JetSet Travel, Inc. (JTI), a company which develops, manufactures, and sells a wide range of travel-related equipment and products.
The company expanded its luggage production this year and invested much of its manufacturing funds into the initial manufacture of a lightweight, yet durable line of luggage. JetSet Travel put many of its research, development, and marketing dollars this year into a breakthrough over- the-counter tablet which prevents jet lag for 98% of adult users.
You were hired to provide the analysis and advice which will help the upper level management make critical decisions to reduce costs and increase profit. In the following months, you will use your accounting skills to assist company leaders by projecting profits, focusing product lines, providing capital budgeting analysis, and making recommendations for containing costs.

Assignment:

JetSet Travel, Inc. expects to become very successful in the manufacture and sales of its new luggage line. This luggage will be sold at about $300 per set.
JTI executive staff has asked you to provide them a slide presentation in the next staff meeting which gives calculations for profit and break-even. This presentation will be the basis of the meeting discussion.
Assume that JTI's annual fixed costs for the luggage line are $500,000, and its variable cost per luggage set is $100.
1. Compute JTI's break-even point for the number of luggage sets and dollars of sales.
2. Suppose JTI plans to sell 3,600 luggage sets in 2008. Compute JTI's projected operating profit.
3. Suppose JTI increased its fixed costs by $100,000 and reduced variable costs per luggage set by $25. Compute its operating profit if 3,600 luggage sets are sold. Compute the break-even point. Comment on your results.
4. Next, ignore requirement 3. Suppose fixed costs do not change, but variable costs increase by 15% before deliveries of luggage sets begin for the year. Compute the new break-even point.

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Solution Summary

This solution is comprised of a detailed explanation to compute JTI's break-even point for the number of luggage sets and dollars of sales.

Solution Preview

Calculation of Profit and Break Even
Scenario:
You have been hired as a consultant for JetSet Travel, Inc. (JTI), a company which develops, manufactures, and sells a wide range of travel-related equipment and products.
The company expanded its luggage production this year and invested much of its manufacturing funds into the initial manufacture of a lightweight, yet durable line of luggage. JetSet Travel put many of its research, development, and marketing dollars this year into a breakthrough over- the-counter tablet which prevents jet lag for 98% of adult users.
You were hired to provide the analysis and advice which will help the upper level management make critical decisions to reduce costs and increase profit. In the following months, you will use your accounting skills to assist ...

Purchase this Solution


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