List four (4) key assumptions underlying a multiproduct break-even analysis, and discuss how realistic they are in this case. Rozar Ltd (RL) specialises in the manufacturer of luxury fumiture for the gaming market. It isconsidering launching a new range of furniture. Based on market research performed, thecompany has estimated the following:Selling priceUnitsGaming chair2,800Message chair3,200420Standing Desk3,600380400Estimated production costs per unit:Gaming chair ($) Message chair ($) Standing Desk ($)Material300400500Labour800900975Variable overhead220220245Fixed overhead353540There are the following additional information:Labour costs are split into 40% variable and 60% fixed.Fixed overheads are absorbed on the basis of units produced.All fixed costs are incremental, i.e. if any of the new range of products islaunched, all of the fixed costs would be incurred for the whole range.The management of RL would like to know if the new range will breakeven prior to committingto production.

In Marginal Costing we calculate contributionmargin by deducting variable costs from sales.…

Rozar Ltd (RL) specialises in the manufacturer of luxury furniture for the gaming market. It is considering launching a new range of funiture. Based on market research performed, the company has estimated the following: Selling price Units Gaming chair 2,800 380 Message chair 3.200 420 Standing Desk 3,600 400 Estimated production costs per unit: Gaming chair (S) Message chair ($) Standing Desk ($) Material 300 400 900 500 975 Labour S00 Variable overhead Fixed overhead 220 220 245 35 35 40 There are the following additional information: Labour costs are split into 40% variable and 60% fixed. Fixed overheads are absorbed on the basis of units produced. All fixed costs are incremental, ie. if any of the new range of products is launched, all of the fixed costs would be incurred for the whole range. The management of RL would like to know if the new range will breakeven prior to committing to production.

Rozar Ltd (RL) specialises in the manufacturer of luxury furniture for the gaming market. It is considering launching a new range of funiture. Based on market research performed, the company has estimated the following: Selling price Units Gaming chair 2,800 380 Message chair 3.200 420 Standing Desk 3,600 400 Estimated production costs per unit: Gaming chair (S) Message chair ($) Standing Desk ($) Material 300 400 900 500 975 Labour S00 Variable overhead Fixed overhead 220 220 245 35 35 40 There are the following additional information: Labour costs are split into 40% variable and 60% fixed. Fixed overheads are absorbed on the basis of units produced. All fixed costs are incremental, ie. if any of the new range of products is launched, all of the fixed costs would be incurred for the whole range. The management of RL would like to know if the new range will breakeven prior to committing to production.

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter11: Linear Optimization Models

Section: Chapter Questions

Problem 1P: Kelson Sporting Equipment, Inc., makes two types of baseball gloves: a regular model and a catchers...

See similar textbooks

Similar questions

The Lyn Division of Rosal Homes Inc. produces and sells lumber that can be sold to outside customers or within the company to the Mel Division. The following data have been gathered for the coming period: Lyn Division: Capacity 100,000 board feet Price per board foot P4.00 Variable production cost per board foot P2.00 Variable selling cost per board foot P0.70 Mel Division: Board feet needed 40,000 Outside price paid per board foot P3.50 If the Lyn Division sells to the Mel Division, P0.40 per board foot can be saved in shipping costs. If Lyn Division has sufficient excess capacity to fulfill the Mel Division’s needs, what will be the effect on the…
The Lyn Division of Rosal Homes Inc. produces and sells lumber that can be sold to outside customers or within the company to the Mel Division. The following data have been gathered for the coming period: Lyn Division: Capacity 100,000 board feet Price per board foot P4.00 Variable production cost per board foot P2.00 Variable selling cost per board foot P0.70 Mel Division: Board feet needed 40,000 Outside price paid per board foot P3.50 If the Lyn Division sells to the Mel Division, P0.40 per board foot can be saved in shipping costs. If current outside sales are 70,000 board feet, what is the minimum transfer price that the Lyn Division could…
Quest Motors, Inc., operates as a decentralized multidivision company. The Vivo division of Quest Motors purchases most of its airbags from the airbag division. The airbag division’s incremental cost for manufacturing the airbags is $90 per unit. The airbag division is currently working at 80% of capacity. The current market price of the airbags is $125 per unit. Q. Using the general guideline presented in the chapter, what is the minimum price at which the airbag division would sell airbags to the Vivo division?
Cobe Company has manufactured 225 partially finished cabinets at a cost of $56,250. These can be sold as is for $67,500. Instead, the cabinets can be stained and fitted with hardware to make finished cabinets. Further processing costs would be $13,500, and the finished cabinets could be sold for $90,000.(a) Prepare a sell as is or process further analysis of income effects.(b) Should the cabinets be sold as is or processed further and then sold?
Aranguez Corporation produces a molded plastic casing, LX20A, for desktop computers. Summary data from its 2013 income statement are as follows: Revenues $ 6,000,000 Variable costs (3,600,000) Fixed costs (2,000,000) Operating income $ 400,000 Jane Dall, Aranguez’s president, is very concerned about Aranguez Corporation’s poor profitability. She asks Giselle James, production manager, and Lester Saline, controller, to see if there are ways to reduce costs. After two weeks, James returns with a proposal to reduce variable costs to 50% of revenues by reducing the costs Aranguez currently incurs for safe disposal of waste plastic. Saline is concerned that this would expose the company to potential environmental liabilities. He tells James, “We would need to estimate some of these potential environmental costs and include them in our analysis.” “You cannot do that,” James replies. “We are not violating any laws. There is some possibility that we…
Ken Yalters, the COO of FreshSkin, asked his cost management team for a product line profitability analysis for his firm's two products - Askin and Bskin. The two products are skin care products that require a large amount of research and development and advertising. He received the report below. Ken concluded that Askin was the more profitable product, and that perhaps cost-cutting measures should be applied to the Bskin product. Askin Bskin Total Sales $ 4,000,000 $ 2,600,000 $ 6,600,000 Cost of goods sold (2,600,000 ) (2,100,000 ) (4,700,000 ) Gross profit $ 1,400,000 $ 500,000 $ 1,900,000 Research and development (1,170,000 ) Selling expenses (130,000 ) Profit before taxes $ 600,000 Seventy-five percent of the research and development and selling expenses were traceable to Askin.Profit before taxes for the Bskin product, per life-cycle income statements, is:
I have submitted the same question twice and it has been resolved two different times with different results. Could you please have a look again into this? Jaime Ltd manufactures and sells a small electric product to order for the computer industry. The estimated selling price and variable costs per unit for next year are as follows: (£ per unit) Selling price 654.00 Variable costs: Direct materials 216.00 Direct labour 108.00 Production overhead 54.00 Selling & distribution overhead 27.00 Jaime Ltd expects to sell 108,000 units next year. Jaime Ltd expects the stock level at the start of the year to be NIL and the stock at the end of the year to be 18,000 units. Information on fixed costs is as follows: Fixed costs: £ Production overhead 1,452,000 Selling & distribution 360,000 Administration overhead 342,000…
The Gargus Company, which manufactures projection equipment, is ready to introduce a new line of portable projectors. The following data are available for a proposed model: Variable manufacturing costs $ 270 Applied fixed manufacturing overhead 135 Variable selling and administrative costs 90 Applied fixed selling and administrative costs 105 What price will the company charge if the firm uses cost-plus pricing based on absorption cost and a markup percentage of 110%?
Sondela Ltd is a manufacturing company that is planning to use the cost-plus pricing method to set the selling price. The company has provided the following data: Variable cost per unit: Direct material R30 Direct labour R45 Manufacturing overheads R75 Sales commission R15 Selling expenses R23 Total fixed costs Depreciation - factory R27 000 Depreciation - administration R45 000 Rent - factory R31 500 Rent - head office R22 500 Selling and administration cost R60 000 Required: (A) Calculate the selling price if the company adds mark-up of 45% on variable costs.
A Company wants to introduce new product. The estimated price of each mobile phone is RO 60. The company requires a profit margin of 20% on sales. The estimated cost of manufacturing the product is : Material cost : RO 9.500 Labour Cost : RO 12.750 Other Direct Expenses : RO 7.500 Administrative Costs : RO 5.000 Marketing and Selling expenses : RO 15.000 Calculate the Target Cost of the product and the Target Cost Gap.
Tennis Products, Inc., produces three models of high-quality tennis rackets. The following table contains recent information on the sales, costs, and profitability of thethree models: The company is considering lowering the price of Model A to $27 in an effort toincrease the number of units sold. Based on the results of price changes that havebeen instituted in the past, Tennis Products’ chief economist estimates the arc priceelasticity of demand to be 2.5. Furthermore, she estimates the arc cross elasticity ofdemand between Model A and Model B to be approximately 0.5 and between ModelA and Model C to be approximately 0.2. Variable costs per unit are not expected tochange over the anticipated changes in volume.a. Evaluate the impact of the price cut on the (i) total revenue and (ii) contributionmargin of Model A. Based on this analysis, should the firm lower the price ofModel A?b. Evaluate the impact of the price cut on the (i) total revenue and (ii) contributionmargin for the entire…
After conducting a market research study, Magnificent Manufacturing decided to produce a new interior door to complement its exterior door line. It is estimated that the new interior door can be sold at a target price of $270. The annual target sales volume for interior doors is 29,000. Magnificent has target operating income of 40% of sales. What are target sales revenues? A. $4,698,000 B. $3,132,000 C. $10,962,000 D. $7,830,000