Question:
(Multiproduct firm) The Pink Flamingo, Inc. manufactures plastic lawn ornaments. Currently the firm manufactures three items: reindeer, snowmen, and flamingos. For each reindeer, two snowmen and four flamingos are sold.
|
Reindeer
|
Snowmen
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Flamingos
|
|
Variable product cost
|
$ 12.00
|
$15.00
|
$25.00
|
|
Variable selling expenses
|
6.00
|
4.50
|
8.00
|
|
Variable administrative expenses
|
3.00
|
5.50
|
6.00
|
|
Selling price
|
40.00
|
35.00
|
60.00
|
|
Annual fixed factory overhead
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$420,000
|
|
|
|
Annual fixed selling expenses
|
150,000
|
|
|
|
Annual fixed administrative expenses
|
80,178
|
|
|
The firm is in a 40 percent tax bracket.
a. What is the annual break-even point in revenues?
b. How many reindeer, snowmen, and flamingos are expected to be sold at the break-even point?
c. If the firm desires pre-tax income of $250,428, how much total revenue is required, and how many units of each product must be sold?
d. If the firm desires after-tax income of $155,718, how much total revenue is required, and how many units of each product must be sold?
e. If the firm achieves the revenue determined in (d), what is its margin of safety in dollars and as a percentage?