Question

Cincinnati Tool Company (CTC) manufactures a line of electric garden tools that are sold in general hardware stores. The company’s controller, Will Fulton, has just received the sales forecast for the coming year for CTC’s three products: hedge clippers, weeders, and leaf blowers. CTC has experienced considerable variations in sales volumes and variable costs over the past two years, and Fulton believes the forecast should be carefully evaluated from a cost-volume-profit viewpoint. The preliminary budget information for 20x2 follows:

Weeders Hedge Clippers Leaf Blowers Unit sales
Unit Sales 50,000 50,000 100,000
Unit selling price $28 $36 $48
Variable manufacturing-
cost per unit 13 12 25
Variable selling cost-
per unit 5 4 6

For 20x2, CTC’s fixed manufacturing overhead is budgeted at $2,000,000, and the company’s fixed selling and administrative expenses are forecasted to be $600,000. CTC has a tax rate of 40 percent.
Required:
1. Determine CTC’s budgeted net income for 20x2.
2. Assuming the sales mix remains as budgeted, determine how many units of each product CTC must sell in order to break even in 20x2.

Answer 1

Answer:

Net Income                                             $ 360,000

Break Even Sales Volume in Units = 55319.14

Explanation:

CTC

Budgeted  Income  Statement for 20x2.

                         Weeders       Hedge Clippers         Leaf Blowers

Unit Sales           50,000                 50,000                   100,000

Unit selling price   $28                       $36                       $48        

                      1400,000             1800,000              $ 4800,000

Variable manufacturing-

cost per unit        13                           12                        25

Variable selling cost-

per unit                5                            4                          6                

Total Variable         18                            16                        31

Costs                      50,000                 50,000                   100,000

                             900,000               800,000                3100,000

Contribution   500,000                1000,000                 1700,000

Margin

Less Fixed manufacturing overhead   $2,000,000

Fixed selling and administrative expenses  $600,000

Income Before Tax                               $600,000

Tax                                                          $ 240,000

Net Income                                             $ 360,000

Break Even Sales Volume in Units = Fixed Costs/ Contribution Margin per Unit

Break Even Sales Volume in Units = $ 2600,000/(112-65)= $ 2600,000/ 47

Break Even Sales Volume in Units = 55319.14