# BUSI 2083 Introduction To Managerial Accounting

## Question:

The company has three models of brewers that offer different features, such as the size of the water reservoir, the number of brewing sizes, and the types of filtering devices used in the machine. Data from the most recent fiscal year for the three models is shown below.

 Model Home Brewer Office Brewer European Deluxe Sales volume (units) 12,000 30,000 6,000 Unit selling price \$150 \$200 \$300 Variable cost per unit 120 140 180 Contribution margin per unit \$30 \$60 \$120

Fixed costs are \$1,500,000 per year. The company has no work in process or finished goods inventories. The company is facing increased levels of competition from manufacturers using similar brewing technologies and believes there is no room for any increases in unit selling prices.

Dark and Bold Inc. is unsure of the strategies to take in order to increase profitability. The engagement partner would like the following questions on his desk by Monday morning:

1. Calculate the company’s overall break-even point in sales dollars.
2. Calculate the sales dollars required for each product at the overall break-even level of sales calculated in (1) above.
3. Calculate the company’s overall break-even point in total units.
4. What impact would doubling the number of Office Brewer units sold next year have on the overall break-even point in sales dollars Assume that there will be no changes to the Home Brewer or European Deluxe unit sales, that unit selling prices and variable costs will remain the same for each model, and that total fixed costs will be unchanged.
5. The company is considering a new advertising campaign to raise overall consumer awareness of the product offerings. The total cost of the year-long campaign would be \$150,000. By how much would sales need to increase overall for the company to be able to justify the new campaign Assume no change to the current product mix.
6. Suppose that instead of being designed to increase total sales volume, the new \$150,000 advertising campaign will focus on getting customers who would have purchased the Office Brewer model to buy the European Deluxe model instead. To justify the cost of the new advertising, how many customers must purchase the European Deluxe model instead of the Office Basic model Assume that the new advertising campaign will have no impact on sales of the Home Brewer model.
7. The company is considering adding a new product to its line of brewers targeted at the office use market (both the Office Brewer and European Deluxe are currently targeting office users). The new brewer, the Office Plus, would sell for \$250 per unit and would have variable unit costs of \$160. Introducing the new model would increase fixed costs by \$102,000 annually and reduce annual unit sales of the Office Brewer and European Deluxe models by 10% each. Assuming no change to the sales of the Home Brewer model, how many units of the Office Plus would need to be sold to justify its addition to the product line next year.

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