Travel-Easy Bag & Baggage Company (TEBBC) manufactures a line of bags and baggage that are sold at its general baggage stores in Melbourne. The Company's accountant, Tommy Hernard, has just received the sales forecast for the coming year for TEBBC's three products: Laptop bags, briefcase and backpacks. TEBBC has experienced considerable discrepancy in sales volumes and variable costs over the past two years, and Hernard believes that the forecast should be cautiously assessed from a cost-volume-profit perspective. The initial budget data for the year 2017 is as follows.
|
Laptop bags |
Briefcases |
Backpacks |
| Unit sales |
6000 |
6000 |
6000 |
| Unit sales price |
$60 |
$75 |
$120 |
| Variable manufacturing costs per unit |
$34 |
$45 |
$70 |
| Variable selling cosr per unit |
$14 |
$15 |
$20 |
For the coming year, TEBBC's fixed manufacturing overhead is budgeted at $200000, and the company's fixed selling and administrative costs are forecast to be $160000. Travel-Easy Bag & Baggage Company has a tax rate of 40 per cent.
Required:
1. Determine TEBBBC's budgeted net profit for the year 2017.
2. Assuming the sales mix remains as planned, determine how many units of each product TEBBC must sell in order to breakeven in the year 2017.
3. Calculate the following items for TEBBC:
a. the projected safety margin in units for the year 2017.
b. the projected safety margin in sales dollars for the year 2017.
4. After preparing the original estimates, management determined that the variable manufacturing cost of backpacks would increase by 20 per cent, and the variable selling cost of Briefcases could be expected to increase by 53.00 per units. However, management have decided not to change the selling price of either product. In addition, management have learned that Backpacks has been perceived as the best value on the market and they can expect to sell three times as many Backpacks as each of their other products. Under these circumstances, determine how many units of each product TEBBC would have to sell in order to break even in the year 2017.