Analytical thinking (Neo) Jasmine Parks encountered her boss , Bobby Gompers, at the pop machine in the lobby. Bobby is the vice president of marketing at Down South Lures Corporation. Jasmine was puzzled by some calculations she had been doing, so she a

Analytical thinking (Neo)

Jasmine Parks encountered  her boss , Bobby Gompers, at the pop machine in the lobby. Bobby is the vice president of marketing at Down South Lures Corporation. Jasmine was puzzled by some calculations she had been doing, so she asked him;

Jasmine: “Bobby, I’m not sure how to go about answering the questions that came up at the meeting with the president Yesterday”

Bobby: What’s the problem?

Jasmine: The president wanted to know the break-even for each of the company’s products, but I am having  trouble figuring them out.

Bobby:  “ I’m  sure you can handle it, Jasmine . And , by the way , I need your analysis on my desk tomorrow morning at 8.00 sharp so I can look at it before the follow-up meeting at 9.00.”

Down South Lures makes three different fishing lures in its manufacturing facility in Alabama. Data concerning these products appear below

                                        Frog          Minnow     Worm

Normal annual sales volume        100,000     200,000     300,000

Unit selling price                     $2.00                      $1.40                   $0.80

Variable cost per unit                             $1.20                  $0.80                $0.50

Total fixed expenses are $282,000 per year

All three products are sold in highly competitive markets, so the company is unable to raise its prices without losing unacceptable numbers of customers

The company has no work in process or finished goods inventories due to an extremely effective Lean Production system

Required

1.  What is the company’s overall break-even point in total sales dollars?

2. Of the total costs of $282,000, $18,000 could be avoided if the frog lure product were dropped, $96,000 if the Minnow lure product were dropped, and $60,000 if the Worn lure product were dropped. The remaining fixed costs of $108,000 consist of common fixed costs such as administrative salaries and rent on the factory building that could be avoided only by going out of business entirely.

a.  What is the break-even point in unit for each product?

b.  If the company sells exactly the break-even quantity of each product, what will be the overall profits of the company? Explain this result.