a. Historical costs are not useless in rapidly changing environment. Even though it does not tell us the fair market value of a certain item, it gives us an idea of how the price has changed as time passes. It allows us to record the depreciation and forecast the future costs. b.
A lotion bundle consists of 2 cases of 4oz, 4 cases of 8oz and 1 case of 12oz bottles. For each lotion bundle:
Therefore, the number of bundles required to break even is $771,000/$257=3,000 bundles 3,000 bundles require a production of 6,000 cases of 4oz, 12,000 cases of 8oz and 3,000 cases of 12oz bottles.
a. Line K
Break-even point in units=$40,000/0.6=66,667 units
Break-even points in sales dollars=$40,000/0.5=$80,000
Break-even point in units=$20,000/0.2=100,000 units
Break-even points in sales dollars=$20,000/0.25=$80,000
b. The fixed costs for the two products combined are expected to be less than the sum of the fixed costs of each product line operating as a separate business because there will be some costs saving when the two lines operate as one business. For example, rent or maintenance fee of a second plant is not necessary, and costs to purchase equipment for L will be significantly reduced.
c. Assuming that for each unit of K sold, one unit of L is sold. K&L combined revenue=$2, variable cost=$1.2, and contribution margin=$0.8 Break-even point in units of K&L=$50,000/0.8=62,500 units Therefore,
Line K Break-even point in units=62,500 units
Break-even points in sales dollars=$75,000
Line L Break-even point in units=62,500 units
Break-even points in sales dollars=$50,000
a. Option A
Fixed cost=$10,000+$5000=$15,000, Variable cost=$0.01+$0.02=$0.03, Revenue=$0.08. Contribution margin=$0.05. Break-even point in units=$15,000/$0.05=300,000...