The Bruggs & Strutton Company Manufactures an Engine for Carpet

question 52

Essay

The Bruggs & Strutton Company manufactures an engine for carpet cleaners called the "Snooper." Budgeted cost and revenue data for the "Snooper" are given below, based on sales of 40,000 units. $\begin{array}{l}\begin{array}{|ll}\hline \text { Sales } \\\hline \text { Less: Cost of goods sold } \\\hline \text { Gross margin } \\\hline \text { Less: Operating expenses } \$ \\\hline \text { Net income } \\\hline\end{array}\begin{array}{|l|}\hline \$ 1,600,000 \\\hline 1.120,000 \\\hline \$ 480,000 \\\hline \quad 100,000 \\\hline \$ 380,000 \\\hline\end{array}\end{array}$
Cost of goods sold consists of $810,000 of variable costs and $310,000 of fixed costs. Operating expenses consist of $30,000 of variable costs and $70,000 of fixed costs.
Required:
A. Calculate the break-even point in units and sales dollars.
B. Calculate the safety margin.
C. Bruggs & Strutton received an order for 6,000 units at a price of $25.00. There will be no increase in fixed costs, but variable costs will be reduced by $0.54 per unit because of cheaper packaging. Determine the projected increase or decrease in profit from the order.

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Definitions:

Marginal Rate Of Transformation

The rate at which one good must be sacrificed to produce an additional unit of another good, based on the given technology and resource constraints.

Marginal Rate Of Transformation

The rate at which one good must be sacrificed to produce an additional unit of another good, reflecting the opportunity cost.

Comparative Advantage

A principle that holds that each party should produce the goods or services for which it has the lowest opportunity cost relative to others.

Trade Restriction

Measures implemented by governments to control the amount of trade across borders, including tariffs, quotas, and non-tariff barriers.