Neptune Company has developed a small Inflatable toy that it is anxlous to Introduce to Its customers. The company's Marketing Department estimates that demand for the new toy will range between 15.000 units and 35,000 units per month. The new toy wll sell for $3 per unit. Enough capacity exists In the company's plant to produce 18.000 units of the toy each month. Varlable expenses to manufacture and sell one unit would be $1.00, and Incremental fixed expenses associated with the toy would total $22.000 per month. Neptune has also Identified an outside supplier who could produce the toy for a price of $1.75 per unit plus a fixed fee of $15.000 per month for any production volume up to 20.000 units. For a production volume between 20,001 and 40,000 units the fixed fee would Increase to a total of $30,000 per month. Required: 1. Calculate the break-even polnt in unit sales assuming that Neptune does not hire the outside supplier. 2. How much profit with Neptune eam assuming: a. It produces and sells 18,000 units. b. It does not produce any units and Instead outsources the production of 18,000 units to the outside supplier and then sells those units to Its customers. 3. Calculate the break-even polnt in unit sales assuming that Neptune plans to use all of its production capacity to produce the first 18,000 units that it sells and that it also commits to hiring the outside supplier to produce up to 17,000 additional units. 4. Assume that Neptune plans to use all of Its production capacity to produce the first 18,000 units that It sells and that it also commits to hiring the outside suppler to produce up to 17,000 additional units. a. What total unit sales would Neptune need to achleve In order to equal the profit earned In requirement 2a? b. What total unit sales would Neptune need to achleve In order to attain a target profit of $16,500 per month? C. How much profit will Neptune earn if it sells 35,000 units per month? d. How much profit wll Neptune earn iIf it sells 35,000 units per month and agrees to pay Its marketing manager a bonus of 10 cents for each unit sold above the break-even polnt from requirement 3? 5. If Neptune outsources all production to the outside supplier, how much profit will the company earn If it sells 35,000 units? 1. Break-even point in unit sales - without hiring 11,000 units 14,000 7,500 18,800 units 2a. Profit if produces and sells 2b. Profit if outsources production and sells 3. Break-even point in unit sales - hiring 4a. Total unit sales 4b. Total unit sales to achieve a target Profit of $16,500 units units $ 20,250 4c. Net operating income 4d. Net operating income - bonus to marketing manager 5. Net operating income - fully outsourced

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Chapter1: Financial Statements And Business Decisions
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**Neptune Company Analysis**

**Introduction:**

Neptune Company has created a new inflatable toy. The toy will sell for $3 per unit. The manufacturing cost is $1 per unit, and the total fixed expenses are $22,000 per month for production up to 18,000 units. An external supplier can produce the toy for $1.75 per unit, with additional fixed costs of $15,000 up to 20,000 units or $30,000 for 20,001 to 40,000 units.

**Required Analysis:**

1. **Break-even Point Without Outsourcing:**
   - Calculate at what unit sales Neptune doesn't need an outside supplier.

2. **Profit Scenarios:**
   - If Neptune produces and sells 18,000 units.
   - If Neptune outsources 18,000 units and sells them.

3. **Break-even Point with Full Capacity:**
   - If using full capacity and outsourcing an additional 17,000 units.

4. **Production and Profit Targets:**
   a. Units needed to equal profit from 18,000 self-produced units.
   b. Units needed for a net profit of $16,500.
   c. Profit at 35,000 units per month.
   d. Profit at 35,000 units with a bonus of 10 cents per unit over break-even from requirement 3.

5. **Outsourcing All Production:**
   - Profit if Neptune only uses the outside supplier for 35,000 units.

**Table Explanation:**

- **Break-even Point Without Hiring**: 11,000 units
- **Profit by Producing and Selling**: 18,000 units, resulting in $12,000 profit
- **Profit by Outsourcing and Selling**: 18,000 units, resulting in $7,500 profit
- **Target Sales for $18,500 Profit**: 18,800 units
- **Net Operating Income**: $20,250 if outsourcing fully

This analysis helps Neptune Company decide whether to produce in-house or outsource based on different sales and profit scenarios.
Transcribed Image Text:**Neptune Company Analysis** **Introduction:** Neptune Company has created a new inflatable toy. The toy will sell for $3 per unit. The manufacturing cost is $1 per unit, and the total fixed expenses are $22,000 per month for production up to 18,000 units. An external supplier can produce the toy for $1.75 per unit, with additional fixed costs of $15,000 up to 20,000 units or $30,000 for 20,001 to 40,000 units. **Required Analysis:** 1. **Break-even Point Without Outsourcing:** - Calculate at what unit sales Neptune doesn't need an outside supplier. 2. **Profit Scenarios:** - If Neptune produces and sells 18,000 units. - If Neptune outsources 18,000 units and sells them. 3. **Break-even Point with Full Capacity:** - If using full capacity and outsourcing an additional 17,000 units. 4. **Production and Profit Targets:** a. Units needed to equal profit from 18,000 self-produced units. b. Units needed for a net profit of $16,500. c. Profit at 35,000 units per month. d. Profit at 35,000 units with a bonus of 10 cents per unit over break-even from requirement 3. 5. **Outsourcing All Production:** - Profit if Neptune only uses the outside supplier for 35,000 units. **Table Explanation:** - **Break-even Point Without Hiring**: 11,000 units - **Profit by Producing and Selling**: 18,000 units, resulting in $12,000 profit - **Profit by Outsourcing and Selling**: 18,000 units, resulting in $7,500 profit - **Target Sales for $18,500 Profit**: 18,800 units - **Net Operating Income**: $20,250 if outsourcing fully This analysis helps Neptune Company decide whether to produce in-house or outsource based on different sales and profit scenarios.
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