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(Solution Download) Jasmine Park encountered her boss, Rick Gompers, at the pop machine in the lobby. Rick is the vice p


 

 

 

 

 

 

 

Jasmine Park encountered her boss, Rick Gompers, at the pop

 

machine in the lobby. Rick is the vice president of marketing at

 

Down South Lures Corporation. Jasmine was puzzled by some

 

calculations she had been doing, so she asked him:

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jasmine:

"Rick, I'm not sure how to go

 

about answering the questions that came up at the meeting with the

 

president yesterday."

 

Rick:

"What's the problem?"

 

Jasmine:

"The president wanted to know

 

the break even for each of the company's products, but I am having

 

trouble figuring them out."

 

Rick:

"I'm sure you can handle it,

 

Jasmine. And, by the way, I need your analysis on my desk tomorrow

 

morning at 8:00 a.m. sharp so I can look at it before the follow-up

 

meeting at 9:00."

 

   

 

 

 

 

 

 

 

 

      Down South Lures makes three

 

fishing lures in its manufacturing facility in Alabama. Data

 

concerning these products appear below.

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FrogMinnowWorm
  Normal annual sales

 

volume

98,000

 

    

199,000

 

    

302,000

 

    

  Unit selling

 

price

$1.70

 

    

$1.90

 

    

$1.20

 

    

  Variable cost per

 

unit

$.80

 

    

$1.20

 

    

$.90

 

    

 

   

 

 

 

 

 

 

 

 

       Total fixed expenses

 

for the entire company are $261,000 per year. All three products

 

are sold in highly competitive markets, so the company is unable to

 

raise its prices without losing unacceptable numbers of customers.

 

The company has no work in process or finished goods inventories

 

due to an extremely effective lean manufacturing system.

 

1. What is the company's overall break-even point in total sales

 

dollars?

 

 

 

 

 

 

 

 

2. Of the total fixed costs of $261,000, $22,680 could be

 

avoided if the Frog lure product were dropped, $113,400 if the

 

Minnow lure product were dropped, and $55,800 if the Worm lure

 

product were dropped. The remaining fixed expenses of $69,120

 

consist of common fixed costs such as administrative salaries and

 

rent on the factory building that could be avoided only by going

 

out of business entirely.

 

 

 

 

 

 

 

 

 

a.

 

What is the break-even point in units for each product?

 

B. If the company sells exactly the break-even quantity of each

 

product, what will be the overall profit or loss of the

 

company?

 

 

 


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