Problem -
The vice-president of sales and marketing, Madison Tremblay, is trying to plan for the coming year in terms of production needs to meet the forecasted sales. The board of directors is very supportive of any initiatives that will lead to increased profits for the company in the upcoming year.
Waterways markets a simple water controller and timer that it mass produces. During 2016, the company sold 320,000 units at an average selling price of $8 per unit. The variable expenses were $1,184,000, and the fixed expenses were $946,000.
If management wanted to income from this product by 10%, how many additional units would the company have to sell to reach this income level?
What is the margin of safety, both in dollars and as a ratio?
What is the company break0-even point in units and in dollars for this product?
What is the product's contribution margin ratio?
WatenWays is considering mass producing one of its special-order screens. This would increase variable costs for all screens by an average of $0.75 per unit. The company also estimates that this change could increase the overall number of screens sold by 10%, and the average sales price would increase by $0.27 per unit. WatenWays currently sells 521,240 screen units at an average selling price of $31.25. The manufacturing costs are $7,275,323 variable and $2,173,150 fixed. Selling and administrative costs are $2,821,033 variable and $842,650 fixed.
If WatenWays begins mass producing its special-order screens, how would this affect the company?