The Sales Manager of Thompson Sales Is Considering Expanding Sales

question 46

Essay

The sales manager of Thompson Sales is considering expanding sales by producing three different versions of its product.Each will be targeted by the marketing department to different income levels and will be produced from three different qualities of materials.After reviewing the sales forecasts,the sales department feels that 70% of units sold will be the original product,20% will be new model #1 and the remainder will be new model #2.The following information has been assembled by the sales department and the production department.
$$\begin{array} { | l | r | r | r | } \hline & \text { Original } & \text { Modes \#1 } & \text { Model \#2 } \\\hline \text { Sales price (per unit) } & \$ 50.00 & \$ 35.00 & \$ 25.00 \\\hline \text { Material cost } & 22.50 & 15.00 & 10.00 \\\hline \text { Direct labor } & 10.00 & 7.50 & 5.00 \\\hline \text { Variable overhead } & 7.00 & 5.25 & 3.50 \\\hline\end{array}$$
The fixed costs associated with the manufacture of these three products are $250,000 per year.Required:
(a)Determine the number of units of each product that would be sold at the break-even point.(b)Determine the break-even point if the sales estimates are instead 50% original product,30% model #1 and the remainder model #2.

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Definitions:

Cash Receipts

Money received during a period, especially in relation to business transactions.

Cash Payments

Transactions in which payment for goods, services, or obligations is made in cash at the time of the transaction or shortly thereafter.

Financing Activities

Transactions involving external sources of funding, including equity, debt, dividends, and repayment of loans, that are reported in the cash flow statement.

Cash Dividends

payments made to shareholders out of a company’s profits, distributed as cash.