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: Direct Material $58 $74 Variable Manufacturing Overhead $48 Variable expenses per unit: Direct Labour Fixed expenses: Fixed Manufacturing Overhead Fixed Selling Costs $215,000 $65,000 Fixed Administrative Costs $160,000 Required: a) Compute the selling price per unit in 2019, using the equation method. b) Given the sales of 3,000 units and the selling price calculated in (a), prepare a contribution margin income statement for the year ended December 31, 2019, detailing the components of total fixed costs and clearly showing contribution and net income. c) Calculate Benoit's break-even point in units and in sales dollars. d) Calculate the margin of safety in units and in sales dollars. e) The President of Benoit is under pressure from shareholders to increase operating income by 50% in 2020. Management expects per unit data and total fixed costs to remain the same in 2020. Compute the number of units that would have to be sold in 2020 to reach the shareholders desired profit level. Is this a realistic goal?
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: Direct Material $58 $74 Variable Manufacturing Overhead $48 Variable expenses per unit: Direct Labour Fixed expenses: Fixed Manufacturing Overhead Fixed Selling Costs $215,000 $65,000 Fixed Administrative Costs $160,000 Required: a) Compute the selling price per unit in 2019, using the equation method. b) Given the sales of 3,000 units and the selling price calculated in (a), prepare a contribution margin income statement for the year ended December 31, 2019, detailing the components of total fixed costs and clearly showing contribution and net income. c) Calculate Benoit's break-even point in units and in sales dollars. d) Calculate the margin of safety in units and in sales dollars. e) The President of Benoit is under pressure from shareholders to increase operating income by 50% in 2020. Management expects per unit data and total fixed costs to remain the same in 2020. Compute the number of units that would have to be sold in 2020 to reach the shareholders desired profit level. Is this a realistic goal?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Please assist with (d) and (e)
a,b and c where previously done.
Thank you!
Transcribed Image Text: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 Overhead $48
Fixed expenses:
Fixed Manufacturing Overhead
Fixed Selling Costs
$215,000
$65,000
$160,000
Fixed Administrative Costs
Required:
а)
Compute the selling price per unit in 2019, using the equation method.
b)
Given the sales of 3,000 units and the selling price calculated in (a), prepare a contribution margin
income statement for the year ended December 31, 2019, detailing the components of total fixed costs
and clearly showing contribution and net income.
c)
Calculate Benoit's break-even point in units and in sales dollars.
d)
Calculate the margin of safety in units and in sales dollars.
e)
The President of Benoit is under pressure from shareholders to increase operating income by 50% in
2020. Management expects per unit data and total fixed costs to remain the same in 2020. Compute
the number of units that would have to be sold in 2020 to reach the shareholders desired profit level. Is
this a realistic goal?
f)
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?
g)
Briefly explain the impact of each of the following scenarios on the break-even point and the margin of
safety:
(i) Increase in sales volume
(ii) Increase in total fixed costs
(iii) Increase in selling price per unit
(iv) Decrease in variable costs per unit
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