Neptune Company produces toys and other items for use in beach and resort areas. A small, inflatable toyhas come onto the market that the company is anxious to produce and sell. The new toy will sell for $3 perunit. Enough capacity exists in the company’s plant to produce 16,000 units of the toy each month. Variable costs to manufacture and sell one unit would be $1.25, and fixed costs associated with the toy wouldtotal $35,000 per month.The company’s Marketing Department predicts that demand for the new toy will exceed the 16,000units that the company is able to produce. Additional manufacturing space can be rented from anothercompany at a fixed cost of $1,000 per month. Variable costs in the rented facility would total $1.40 perunit, due to somewhat less efficient operations than in the main plant.Required:1. Compute the monthly break-even point for the new toy in units and in total sales dollars. Show allcomputations.2. How many units must be sold each month to make a monthly profit of $12,000?3. If the sales manager receives a bonus of 10 cents for each unit sold in excess of the break-even point,how many units must be sold each month to earn a return of 25% on the monthly investment in fixedcosts?
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 $3 per
unit. Enough capacity exists in the company’s plant to produce 16,000 units of the toy each month. Variable costs to manufacture and sell one unit would be $1.25, and fixed costs associated with the toy would
total $35,000 per month.
The company’s Marketing Department predicts that demand for the new toy will exceed the 16,000
units that the company is able to produce. Additional manufacturing space can be rented from another
company at a fixed cost of $1,000 per month. Variable costs in the rented facility would total $1.40 per
unit, due to somewhat less efficient operations than in the main plant.
Required:
1. Compute the monthly break-even point for the new toy in units and in total sales dollars. Show all
computations.
2. How many units must be sold each month to make a monthly profit of $12,000?
3. If the sales manager receives a bonus of 10 cents for each unit sold in excess of the break-even point,
how many units must be sold each month to earn a return of 25% on the monthly investment in fixed
costs?
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