Buggs-Off Corporation produces and sells a line of mosquito repellants that are sold usually all year round. The product sells at $100 per box. The following cost data has been prepared for its estimated upper and lower limits of activity for the year ended December 31, 2020. Lower Limit Upper Limit 4,000 Production (# of boxes) Production Costs: Direct Materials . Direct Labour 6,000 $60,000 $90,000 80,000 120,000 Overhead: Indirect Materials.. Indirect Labour . Depreciation .. Selling & Administrative Expenses: Sales Salaries Office Salaries 25,000 37,500 40,000 50,000 20,000 20,000 50,000 65,000 30,000 30,000 Advertising . 45,000 45,000
Buggs-Off Corporation produces and sells a line of mosquito repellants that are sold usually all year round. The product sells at $100 per box. The following cost data has been prepared for its estimated upper and lower limits of activity for the year ended December 31, 2020. Lower Limit Upper Limit 4,000 Production (# of boxes) Production Costs: Direct Materials . Direct Labour 6,000 $60,000 $90,000 80,000 120,000 Overhead: Indirect Materials.. Indirect Labour . Depreciation .. Selling & Administrative Expenses: Sales Salaries Office Salaries 25,000 37,500 40,000 50,000 20,000 20,000 50,000 65,000 30,000 30,000 Advertising . 45,000 45,000
Chapter10: Short-term Decision Making
Section: Chapter Questions
Problem 14MC: A company produces two products. E and F in batches of 100 units. The production and cost data are:...
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d. Assuming sales of 5,000 units, calculate Buggs-Off break-even point and margin of safety in units and sales dollars.
e) Recompute the break-even point in units, assuming that variable costs increased by 20% and fixed costs are reduced by $50,625. How will this impact the margin of safety ratio?
f) The President of Buggs-Off is under pressure from shareholders to increase operating income by 20% in 2021. Management expects per unit data and total fixed costs to remain the same in 2021. Using the equation method, compute the number of units that would have to be sold in 2021 to reach the shareholders desired profit level. Is this a realistic goal?
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