ABC Technologies, Inc manufactures baseball bats. The bats currently sell for $
ID: 2778875 • Letter: A
Question
ABC Technologies, Inc manufactures baseball bats. The bats currently sell for $ 65.00. The variable costs are $ 42.00 to manufacture and the fixed costs are $ 90,000. Determine the following: a) Break even in units b) Break even in dollars c) If the company wishes to make $ 70,000 how many units must they sell. d) If the company were to raise the selling price by 10% and reduce variable costs by 5%, what would be the new breakeven. (Fixed costs remain at $ 90,000) e) The company spent an additional $ 14,000 for an extensive advertising campaign. If the advertising campaign resulted in additional sales of 570 units, was the campaign profitable? Note: I am expecting an actual dollar amount. Assume the original $ 65 selling price and $ 42.00 variable cost
Explanation / Answer
Contribution perv bat = Selling price - Variable cost
= 65-42 i.e 23 per unit
Break even sales ( Units) = Fixed cost / Contribution per unit
= 90000/23 i.e 3913
Break even sales dollars = 3913 *65 i.e 254348
Desired sales = Fixed Cost + Desired Profit / Contribution per unit
= 90000+70000/23 i.e 6957 units
New Break Even = 90000/(65*110%)-(42*95%)
= 90000/31.60 i.e 2848 units
Contribution earned on 570 units = 570(65-42) i.e 13110
Additional advertising cost = 14000
Loss on additional units = 14000-13110 i.e 890