Cheryl Montoya picked up the phone and called her boss, WesChan, the vice president of marketing at Piedmont FastenersCorporation: “Wes, I’m not sure how to go about answering thequestions that came up at the meeting with the presidentyesterday.”
"What's the problem?"
“The president wanted to know the break-even point for each ofthe company’s products, but I am having trouble figuring themout.”
“I’m sure you can handle it, Cheryl. And, by the way, I needyour analysis on my desk tomorrow morning at 8:00 sharp in time forthe follow-up meeting at 9:00.”
Piedmont Fasteners Corporation makes three different clothingfasteners in its manufacturing facility in North Carolina. Dataconcerning these products appear below:
VelcroMetalNylon
Annual sales volume97,000213,000302,000
Unit selling price$1.50$1.90$1.40
Variable expense per unit$1.00$1.30$0.90
Total fixed expenses are $267,000 per year.
All three products are sold in highly competitive markets, sothe company is unable to raise prices without losing anunacceptable numbers of customers.
The company has an extremely effective lean production system,so there are no beginning or ending work in process or finishedgoods inventories.
Required:
1. What is the company’s over-all break-even point in dollarsales?
2. Of the total fixed expenses of $267,000, $13,550 could beavoided if the Velcro product is dropped, $100,200 if the Metalproduct is dropped, and $97,000 if the Nylon product is dropped.The remaining fixed expenses of $56,250 consist of common fixedexpenses such as administrative salaries and rent on the factorybuilding that could be avoided only by going out of businessentirely.
a. What is the break-even point in unit sales for eachproduct?
b. If the company sells exactly the break-even quantity of eachproduct, what will be the overall profit of the company?
