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Neptune Company produces toys and other items for use in beach and resort areas

Accounting

Neptune Company produces toys and other items for use in beach and resort areas. A small, inflatable toy has come onto the market that the company is anxious to produce and sell. The new toy will sell for $2.90 per unit. Enough capacity exists in the company's plant to produce 30,900 units of the toy each month. Variable expenses to manufacture and sell one unit would be $1.84, and fixed expenses associated with the toy would total $48,631 per month. The company's Marketing Department predicts that demand for the new toy will exceed the 30,900 units that the company is able to produce. Additional manufacturing space can be rented from another company at a fixed expense of $2,432 per month. Variable expenses in the rented facility would total $2.03 per unit, due to somewhat less efficient operations than in the main plant

Required:

1 What is the monthly break-even point for the new toy in unit sales and dollar sales. (Round "per unit" to 2 decimal places intermediate and final answers to the nearest whole number.)

2. How many units must be sold each month to attain a target profit of $10,788 per month? (Round "per unit" to 2 decimal places, intermediate and final answer to the nearest whole number)

3. If the sales manager receives a bonus of 25 cents for each unit sold in excess of the break-even point, how many unlts must be sold each month to attain a target profit that equals a 27% return on the monthly investment in ted expenses? (Round "per unit" to 2 decimal places, intermediate and final answer to the nearest whole number)

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Answer 1.                
                   
Monthly BEP for New Toy,              
Upto 30,900 Units:                
                   
Contribution Margin Per Toy = $2.90 - $1.84 = $1.06 per Toy        
Fixed Cost = $48,631                
                   
At 30,900 Units, Current Contribution Cover = $1.06 X 30,900 Units = $32,754    
Uncovered Fixed costs = $48,631 - $32,754 = $15,877          
                   
Additional Fixed Cost = $2,432              
Contribution at New Factory = $2.90 - $2.03 = $0.87 per Toy        
                   
BEP for New Factory = Fixed Cost / Contribution per Unit        
BEP for New Factory = ($15,877 + $2,432) / $0.87          
BEP for New Factory = 21,044.83 or say 21,045 Units (approx.)        
                   
Monthly BEP = 30,900 Units + 21,045 Units          
Monthly BEP = 51,945 toys              
                   
Answer 2.                
                   
Target Profit = $10,788 per month            
BEP (target profit) = (Fixed Cost + Target Profit) / Contribution per Unit      
BEP for New Factory = ($15,877 + $2,432 + $10,788 ) / $0.87        
BEP for New Factory = 33,444.83 or say $33,445 units (Approx.)        
                   
Monthly BEP (Target Profit - $10,788) = 30,900 Units + 33,445 Units      
Monthly BEP (Target Profit - $10,788) = 64,345 Units          
                   
                   
Answer 3.                
                   
Monthly Target Profit = ($48,631 + $2,432) X 27%          
Monthly Target Profit = 13,787.01            
                   
New Variable cost in new Factory = Current Variable Cost + Bonus Paid to Sales Manager  
New Variable cost in new Factory = $2.03 + $0.25 = $2.28        
New Contribution = $2.90 - $2.28 = $0.62 per toy          
                   
Units to be sold over 30,900 Toys to earn Profit of $13,787.01 = ($15,877 + $2,432 + $13,787.01) / $0.62
Units to be sold over 30,900 Toys to earn Profit of $13,787.01 = 51,767.76 or say 51,768 units  
                   
Monthly BEP = 30,900 Units + 51,768 Units          
Monthly BEP = 82,668 Units        

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