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E4.5 Crow, Inc., a not-for-profit company, has a product contribution
margin of $40. The fixed costs are $800,000. Crow, Inc., has set a
target profit of $35,000
per year. LO 2
A. What is the breakeven point in units?
B. How many units must be sold to achieve the target profit?
C. If fixed costs decrease 10 percent, how many units must be sold to achieve the target profit?
P 4.8 Buchanan Enterprises has projected its income before taxes as follows:
Sales (800,000 units) $16,000,000
Variable costs 2,000,000
Contribution margin $14,000,000
Fixed costs 8,000,000
Income before taxes $6,000,000
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 contribution margin ratio?
E. What is the breakeven point in units?
F. What is the breakeven point in dollars?
P 4.10 Crawford sells three types of games to national
toy companies. These games are known internally as Gamma, Omega, and
Lambda. Recently the Gamma and Lambda
lines have not shown acceptable profits. The most recent
monthly results are:
Gamma Omega Lambda Unit sales 1,800 400 1,500 Sales $900
$1,200 $1,500 Cost of goods sold 810 600 1,245 Gross margin 90 600 255
Selling and administrative cost 204
218 240 Profit $(114) $ 382 $ 15
Additional analysis reveals that $150 per month in
facility-sustaining selling and administrative cost is charged to each
product line. The
remaining costs are assumed to vary directly with the
number of units sold. Crawford is analyzing the following alternatives:
1. Discontinue the Gamma line and increase
advertising at a cost of $10 per month for the Lambda line. This is
to increase Lambda sales by 20 percent.
2. Discontinue the Gamma and Lambda lines and
focus solely on the Omega line. This is expected to increase Omega sales
by 40 percent.
3. Increase promotion of both the Gamma and
Lambda lines. The promotion will increase selling costs by $25 per month
each line. Unit sales of Gamma are expected to increase
by 15 percent while unit sales of Lambda are expected to increase by 10
4. Do nothing. Leave the Gamma, Lambda, and Omega lines as they are.
A. Evaluate each alternative. Which alternative is best for Crawford Company?
B. What additional factors should Crawford consider before making this decision?
P 5.4 Bunkowske Company plans to introduce a new product
next year. This product has a two-year life and an estimated demand of
20,000 units annually. The product
will be produced 50 weeks each year. Bunkowske estimates
the following costs:
• Direct materials will be $16 per unit.
• Setup costs will be $200 per week. Ten setups will be required per week.
• Design costs will be $40,000 in total.
• Specialized equipment must be rented for $15,000 per week.
• Research and development costs are estimated at $500,000.
• Labor will be paid $20 per hour. Five employees
will be assigned to this product and each employee will work 35 hours on
Bunkowske Company uses cost-plus pricing whereby the
selling price of each of its products are 150 percent of the life-cycle
costs. Determine the selling price of
P 5.9 Praeuner Company has surveyed the market and set a
target selling price of $2,000 per unit for its product. Praeuner
believes it can sell 100,000 units of
this product over its two-year life. Praeuner requires a
20 percent return on selling price. Therefore its target cost per unit
is $1,600. Praeuner has gathered
the following budgeted cost data:
Unit cost $ 1,200
Batch cost (batch size = 1,000) 15,000
Product-sustaining cost (annual) 480,000
Facility-sustaining cost (annual) 900,000
In addition to the previous costs, Praeuner will incur
$5,000,000 in research and development costs before the product is
A. What is the total target cost for this product's life?
B. What is the total budgeted cost for this product over its two-year life?
C. Should Praeuner develop this product? Why?