Samantha Manufacturing Company manufactures and sells musical gadgets. The business earned Operating Income of $220,000 in 2018, when selling price per unit was $200, and the president of Samantha is under pressure to increase operating income in 2019. Data for variable cost per unit and total fixed costs were as follows: Variable expenses per unit: Direct Material $40 Direct Labour $32 Variable Manufacturing Overhead $18 Fixed expenses: Fixed Manufacturing Overhead $190,000 Fixed Selling Costs $115,000 Fixed Administrative Costs $135,000 Required: (d) Calculate the margin of safety in units and in sales dollars. (e) The management of Samantha Manufacturing Company is desirous of increasing operating income by 20% in 2019. They expect per unit data and total fixed costs to remain the same in 2018. Determine the number of units that must be sold to earn this target operating profit. Is this a realistic goal? (f) Assume that as a result of reorganizing the production process, Samantha Manufacturing Company was able to reduce direct material cost per unit by $5 due to a change in the quality of raw material used in the production process but the expected sales of 6,000 units would decrease by 5% and total fixed costs are expected to increase by $94,000. What must the new selling price per unit be if the company wishes to meet the target operating profit for 2019?
Samantha Manufacturing Company manufactures and sells musical gadgets. The business earned Operating Income of $220,000 in 2018, when selling price per unit was $200, and the president of Samantha is under pressure to increase operating income in 2019. Data for variable cost per unit and total fixed costs were as follows:
Variable expenses per unit: Direct Material $40
Direct Labour $32
Variable Manufacturing Overhead $18
Fixed expenses: Fixed Manufacturing Overhead $190,000
Fixed Selling Costs $115,000
Fixed Administrative Costs $135,000
Required:
(d) Calculate the margin of safety in units and in sales dollars.
(e) The management of Samantha Manufacturing Company is desirous of increasing operating income by 20% in 2019. They expect per unit data and total fixed costs to remain the same in 2018. Determine the number of units that must be sold to earn this target operating profit. Is this a realistic goal?
(f) Assume that as a result of reorganizing the production process, Samantha Manufacturing Company was able to reduce direct material cost per unit by $5 due to a change in the quality of raw material used in the production process but the expected sales of 6,000 units would decrease by 5% and total fixed costs are expected to increase by $94,000. What must the new selling price per unit be if the company wishes to meet the target operating profit for 2019?
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