Susan Lo picked up the phone and called her boss, Phil Takata,the vice president of marketing at Jewel Clasps Corporation: “Phil,I’m not sure how to go about answering the questions that came upat the meeting with the president yesterday.”
"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, Susan. 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.”
Jewel Clasps Corporation makes three different types ofjewelry clasps in its manufacturing facility in North Carolina.Data concerning these products appear below:
Gold Silver Copper
Annual sales volume 118,000 207,000 292,000
Unit selling price $1.80. $1.50 $1.40
Variable expense per unit $0.70 $0.80 $1.10
Total fixed expenses are $262,000 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.
**TIP: To answer the questions below, it will be most helpfulif you prepare segmented income statements as illustrated in yourtextbook
Required:
1. What is the company’s over-all break-even point in dollarsales?
2. Of the total fixed expenses of $262,000, $28,050 could beavoided if the Gold product is dropped, $120,400 if the Silverproduct is dropped, and $58,800 if the Copper product is dropped.The remaining fixed expenses of $54,750 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 ofeach product, what will be the overall profit of the company?
