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Anticipated Demand: Toy Box Inc.

Toy Box Inc. is contemplating expanding their sales of their children's toys. The have an opportunity to stock and sell the X toy that has been a big hit with children everywhere. They need to order the X toys from the manufacturer in a minimum order of 100 at a cost of $12 each. They could resell the X toy in their store for $22 each.

Due to anticipated demand, Toy Box Inc. will need to hire an additional part-time cashier at $600 a month which will be classified as a fixed-cost attributable to the X toy. Also, they have offered a $1 sales commission per toy to their floor sales representative. They will also include a package of trading cards with every purchase of an X toy, which will cost them an additional $2 each.

To make the project worthwhile, Toy Box Inc. would require a $5,000 profit per month. What level of sales in units and in dollars would be required to reach this target profit? Show all computations.
Assume that the venture is undertaken and an order is placed for 100 X toys. What would be Toy Box's break-even point in units and in sales dollars? Show computations and explain the reasoning behind your answer. You can ignore the fixed cost of $600 for this part.

Solution Preview

Variable Manufacturing Cost per X Toy: $12
Variable Sales Cost per X Toy: $1 (Sales Commission) + $2 (Trading Cards) = $3
Total Variable Cost per X Toy = $12+ $3 = $15

Price per X Toy: $22

Total Margin per X Toy: $22 - $15 = ...

Solution Summary

The following posting helps with problems involving target profits and break-even points.