Search
Ask a question
-1

If managers decide to introduce the new leather briefcase, how many units of each briefcase would be required to break even in the coming year? Leather? Molded?

Blossom Company produces a molded briefcase that is distributed to luggage stores. The following operating data for the current year has been accumulated for planning purposes.

Sales price

$41.00
Variable cost of goods sold

13.00
Variable selling expenses

11.60
Variable administrative expenses

4.00



Annual fixed expenses


Overhead

$23,868,000
Selling expenses

4,743,000
Administrative expenses

9,945,000

Blossom can produce 4,590,000 cases a year. The projected net income for the coming year is expected to be $5,508,000. Blossom is subject to a 40% income tax rate.

During the planning sessions, Blossom’s managers have been reviewing costs and expenses. They estimate that the company’s variable cost of goods sold will increase 15% in the coming year and that fixed administrative expenses will increase by $459,000. All other costs and expenses are expected to remain the same.

Blossom Company’s managers are considering expanding the product line by introducing a leather briefcase. The new briefcase is expected to sell for $91.00; variable costs would amount to $37.00 per briefcase. If Blossom introduces the leather briefcase, the company will incur an additional $918,000 per year in advertising costs. Blossom’s marketing department has estimated that one new leather briefcase would be sold for every four molded briefcases.

1 Answer by Expert Tutors

Tutors, sign in to answer this question.
Darrell K. | Experienced High School and College TutorExperienced High School and College Tuto...
5.0 5.0 (9 lesson ratings) (9)
1
To find the break even price you can use this formula
 
Fixed Costs ÷ (Price - Variable Costs) = Breakeven Point in Units