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This year Best Company earned a disappointing 5.6% after-tax return on sales (net income/sales) from
marketing 100,000 units of its only product. The company buys its product in bulk and repackages it for
resale at the price of $20 per unit. Best incurred the following costs this year. Total variable unit costs . . . . . . . . . . . . . . . . . . . . . $800,000
Total variable packaging costs . . . . . . . . . . . . . . . $100,000
Fixed costs . . . . . . . . . . . . . . . . . . . . . . . $950,000
Income tax rate . . . . . . . . . . . . . . . . . . . 25%
The marketing manager claims that next year’s results will be the same as this year’s unless some changes
are made. The manager predicts the company can increase the number of units sold by 80% if it reduces
the selling price by 20% and upgrades the packaging. This change would increase variable packaging
costs by 20%. Increased sales would allow the company to take advantage of a 25% quantity purchase
discount on the cost of the bulk product. Neither the packaging change nor the volume discount would
affect fixed costs, which provide an annual output capacity of 200,000 units.
Required
1. Compute the break-even point in dollar sales under the (a) existing business strategy and (b) new strategy
that alters both unit selling price and variable costs. (Round answers to the next whole dollar.)
2. Prepare a
expected results of (a) the existing strategy and (b) changing to the new strategy. The statements
should report sales, total variable costs (unit and packaging), contribution margin, fixed costs,
income before taxes, income taxes, and net income. Also determine the after-tax return on sales
for these two strategies.
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- Bent Tree incurred the following unit costs during the year: variable manufacturing cost, $27; fixed manufacturing cost, $10; variable marketing and administrative cost, $8; and fixed marketing and administrative cost, $6. During the year, Bent Tree produced 30,000 units and sold 25,000 units of product. The selling price was $67 per unit. What was Bent Tree's total gross margin? Multiple Choice None of these. $1,000,000 $400,000 $750,000 $800,000arrow_forwardThe Bedou - Kwaku Company produces and sells only one product Product J-99. Bedou - Kwaku Company's data for the current year are Sales revenue (25,000 units )......$225,000 Costs Variable costs..........$117,000 Fixed costs .........$38,400 Total costs.........$155,400 Net income.........$ 69,600 What is Bedou - Kwaku Company's break -even point in sales dollars ? (ignore income taxes ) $ 8,889 $117,000 $ 155,400 $ 80,000 $69,600arrow_forwardPlease provide answerarrow_forward
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