Assume that as a result of reorganizing the production process, the management of Benoit Manufacturing was able to reduce direct material cost per unit by $5 due to a change in the supplier of the raw material used in the production process. Variable manufacturing overhead per unit would also decrease by $3. The business is also considering paying additional annual commission of $36,400 to its sales team as part of the sales expansion effort, which should result in an increase in sales revenue. The head of the marketing department has indicated that the effort of the sales team should result in a 5% increase in sales volume. What must the new selling price per unit be if the company wishes to meet the shareholders desired profit level for 2020? Is this a viable option?
Benoit Manufacturing Company manufactures and sells parts for various musical gadgets. The following information to a single part which is used in the production of a wind instrument. The business earned Operating Income of $220,000 in 2019, when production was 3,000 units and the president of Darius is under pressure from shareholders to increase operating income in 2020 and is therefore considering the implementation of strategies mainly geared at increasing revenues and or decreasing variable costs. Data for variable cost per unit and total fixed costs were as follows:
|
Variable expenses per unit: Direct Material |
$58 |
|
Direct Labour |
$74 |
|
Variable Manufacturing |
$48 |
|
Fixed expenses: Fixed Manufacturing Overhead |
$215,000 |
|
Fixed Selling Costs |
$65,000 |
|
Fixed Administrative Costs |
$160,000 |
1. Assume that as a result of reorganizing the production process, the management of Benoit Manufacturing was able to reduce direct material cost per unit by $5 due to a change in the supplier of the raw material used in the production process. Variable manufacturing overhead per unit would also decrease by $3. The business is also considering paying additional annual commission of $36,400 to its sales team as part of the sales expansion effort, which should result in an increase in sales revenue. The head of the marketing department has indicated that the effort of the sales team should result in a 5% increase in sales volume. What must the new selling price per unit be if the company wishes to meet the shareholders desired profit level for 2020? Is this a viable option?
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