Answered: Aero Ltd manufactures and sells a range…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 3CMA: Aril Industries is a multiproduct company that currently manufactures 30,000 units of Part 730 each...

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Question

Aero Ltd manufactures and sells a range of outdoor activities and camping equipment. The company has recently produced and marketed a new product called EcoTent. The plant’s production capacity is 8,000 units on a monthly basis. Manufacturing variable costs (manufacturing and selling) amount to £12.50 per unit. EcoTent related fixed costs would total £65,000 per month.

Predicted monthly demand for EcoTent is expected to exceed 8,000 units. Additional plant space would need to be rented. This would incur a fixed cost of £2,200 on a monthly basis. Variable costs of £14 per unit for the production of EcoTent would be incurred in the rented plant facility.

Aero Ltd plans to sell EcoTent at £20 per unit.

c) The company is also considering the implementation of a new reward scheme in which sales managers would receive a bonus of £0.50 for each unit sold in excess of the break-even point. How many units would be required to sell (monthly) to obtain a rate of return of 25% on the monthly investment (additional plant space requires additional fixed costs on a monthly basis) in fixed costs?
d) Identify and discuss five assumptions of break-even analysis

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