CASE STUDY 1 : BREEDEN ELECTRONICS

SUBMISSION BY : SALIL DAS

QUESTION 1:
What would breakeven sales volume be, assuming a ratio of two RC1s sold for each RC2 sold?
ANSWER 1:
From the available data variable cost per unit need to be calculated in order to obtain the
contribution per unit. The calculation is as below:

10,000 RC1 Units 5,000 RC2 units

Total $ Per Unit Total $ Per Unit
To calculate total direct cost per unit

Parts 55,000 5.50 32,000 6.4

Direct Labour 35,000 3.50 21,000 4.2

Total Direct 90,000 53,000

Total Direct Per Unit 9.00 10.6
To calculate variable cost per unit

Supplies 14,000 7,000

Variable Overhead Per Unit 1.40 1.40

Total Variable Cost Per Unit $10.40 $12

Contribution per unit 9.60 11

(SP –VC) ($20-10.40) ($23-12)

The following is the calculation of the total Fixed cost:

Manufacturing Cost $

Occupancy (Utilities, rent, maintenance) 15000

Equipment Maintenance 17000

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 Equipment depreciation 8000

Quality control and production engineering 15000

Manufacturing administration 36000

Total Manufacturing Cost 91000

+ Selling and administrative 40000

Total Fixed Cost 131000

Break-even Contribution Ratio for RC1 and RC2 = 2:1

Combined Unit Contribution for RC1 and RC2 = (2*9.60) + (1*11.0)
= 30.2
At Break-even Point,
Total fixed Cost + Total Variable cost = Total Sales
Total Fixed cost = n (Total Sales –Total Variable Cost)
= n (Unit Selling price – Variable Cost)
= n (Combined Unit Contribution)
i.e. 131000 = n * 30.2
Therefore, n = 131000/30.2
= 4338 units
RC2 units = 4338
RC1 units = 2 * 4338 = 8 676 units
Break-even point = 4338 + 8676 = 13014 units
Break-even Sales = 4338 * 23 + 8676 * 20
= $ 273294

QUESTION 2:

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What level of sales would provide the $210,000 profit target for the year, as specified by the
parent company? (Assume that Breeden Electronics sells all they produce.)
ANSWER 2:
Annual Profit = 210000
Monthly profit = 17500
Total Cost + Profit = Sales
TFC + TVC + Profit = Sales
TFC + Profit = Sales – TVC
TFC + Profit = [(n* Unit Selling Price) – (n*variable cost per unit)]
TFC + Profit = n [Unit Selling Price - Variable Costs]
131000 + 17500 = n (30.20)
n = 148500/30.20
= 4917 units
No. of RC2 Units = 4917 units
No. of RC1 Units = 2*4917
= 9834 units

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QUESTION 3:
What would be the manufacturing cost per unit if they made and sold only 8,000 RC1 units and
4,000 RC2 units per month? In that case, what would the profit be?
ANSWER 3:

RC1 RC2
8000 4000
Per Unit Total Per Unit Total
Parts 5.5 44000 6.4 25600
Direct Labor 3.5 28000 4.2 16800
Total Direct cost 72000 42400
Other Manufacturing overhead cost 56000 33600
Total Manufacturing cost 128000 76000
Manufacturing Cost per unit 16.00 19.00

Selling and Administrative charge 40000

Total Expense 244000

Selling Price 20 23
Sales Revenue 160000 92000
Total Sales 252000
Profit for the month 8000

NOTE: Overhead is allocated in the ratio of $2 overhead for every $1 Direct labor.

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QUESTION 4:
What would profit be if they sold 8,000 RC1 units and 4,000 RC2 units (as in question 3) but
produced 10,000 RC1 units and 5,000 RC2 units, putting the unsold units in finished goods
inventory? Explain the difference in your answers to questions 3 and 4.
ANSWER 4:

RC1 RC2
10000 5000
Per Unit Total Per Unit Total
Parts 5.5 55000 6.4 32000
Direct Labour 3.5 35000 4.2 21000
Total Direct cost 90000 53000
Other Manufacturing overhead cost 70000 42000
Total Manufacturing cost 160000 95000
Manufacturing Cost per unit 16.00 19.00

Selling and Administrative charge 40000

Total Expense 295000

Selling Price 20 23
Sales Revenue 160000 92000
Total Sales 252000
Profit for the month -43000

The difference is due to the fact that the overhead is allocated based on the direct labor. As the
number of units produced increased, the overhead also increased resulting in an overall loss.

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QUESTION 5:
Re compute product costs for RC1 and RC2 by completing the work Marlene Baer began.
ANSWER 5:

RC1 RC2
10000 5000
Per Unit Total Per Unit Total
Parts 5.5 55000 6.4 32000
Direct Labour 35000 21000
Total Direct cost 90000 53000
Supplies 1.37 13700 1.46 7300
Other Manufacturing cost 55143 35857
Total Manufacturing overhead 68843 43157
Total Manufacturing cost 158843 96157
Manufacturing Cost per unit 15.88 19.23
Selling and Administrative charge 40000
Total Expense 295000

NOTE:
Direct Labor Distribution
RC1 RC2 Total
Fabrication 10000 8500 18500
Assembly 21000 9000 30000
Shipping 4000 3500 7500
Total 35000 21000 56000
Overhead distribution
RC1 RC2 Total
Fabrication 15135 12865 28000
Assembly 11900 5100 17000
Shipping 3733 3267 7000
General operations 24375 14625 39000

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Total 55143 35857 91000

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