lossom 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.
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.
Variable cost of goods sold
Variable selling expenses
Variable administrative expenses
Annual fixed expenses
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.
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