Calculations Shown

Break Even Analysis with Changing Information

Off Road, Inc. (ORI) sells a dune buggy accessory: a gun rack for the roll bar. Actual 2002 and estimated/projected 2003 cost information for the accessory are presented below.

Estimated Actual

2003 2002

Sales* 100,000 89,985

Cost of goods sold**

Direct materials 22,000 17,140

Direct labor 5,000 4,200

Variable manufacturing overhead 6,000 5,185

Fixed manufacturing overhead 11,000 13,475

Gross profit 56,000 49,985

Selling Expenses:

Sales salaries 12,000 11,500

Sales commissions 5,000 4,500

Depreciation, sales equipment 2,000 2,000

Administrative expenses:

Office salaries 12,000 11,200

Depreciation, office equipment 1,600 1,400

Rent 5,000 4,500

Insurance 1,400 1,100

Operating Income 17,000 13,785

*Sales are based on a selling price of $105 per unit in 2002 and, due to competition, $100 per unit in 2003.

**Units produced = units sold

Management has asked you to determine the level of sales necessary for this product to "break even" in 2003.