Bruggs & Strutton

  

The break-even point

The Bruggs & Strutton Company manufactures an engine for carpet cleaners called the “Snooper.”  Cost and revenue data for the “Snooper” are given below, based on sales of 40,000 units.

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Sales $1,600,000
Less: Cost of goods sold    1,120,000
Gross margin                 $   480,000
Less: Operating expenses      100,000
Operating income before taxes $   380,000

Cost of goods sold consists of $800,000 of variable costs and $320,000 of fixed costs.  Operating expenses consist of $40,000 of variable costs and $60,000 of fixed costs.

Required:
A. Calculate the break-even point in units and sales dollars.
B. Calculate the safety margin.
C. Bruggs & Strutton received an order for 6,000 units at a price of $25.00.  There will be no increase in fixed costs, but variable costs will be reduced by $0.54 per unit because of cheaper packaging.  Determine the projected increase or decrease in profit from the order.
D. Bruggs also received an order for 2,500 units at $29 per unit.  If packaging costs will not be reduced on this order and only one order (“C” or “D”) can be accepted, which order is more attractive?
The break-even point

The Bruggs & Strutton Company manufactures an engine for carpet cleaners called the “Snooper.”  Cost and revenue data for the “Snooper” are given below, based on sales of 40,000 units.

Sales $1,600,000
Less: Cost of goods sold    1,120,000
Gross margin                 $   480,000
Less: Operating expenses      100,000
Operating income before taxes $   380,000

Cost of goods sold consists of $800,000 of variable costs and $320,000 of fixed costs.  Operating expenses consist of $40,000 of variable costs and $60,000 of fixed costs.

Required:
A. Calculate the break-even point in units and sales dollars.
B. Calculate the safety margin.
C. Bruggs & Strutton received an order for 6,000 units at a price of $25.00.  There will be no increase in fixed costs, but variable costs will be reduced by $0.54 per unit because of cheaper packaging.  Determine the projected increase or decrease in profit from the order.
D. Bruggs also received an order for 2,500 units at $29 per unit.  If packaging costs will not be reduced on this order and only one order (“C” or “D”) can be accepted, which order is more attractive?

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