Mistry Company manufactures a line of electric garden tools that are sold in general hardware stores. The company’s controller, Sylvia Harlow, has just received the sales forecast for the coming year for Mistry’s three products: weeders, hedge clippers and leaf blowers. Mistry has experienced considerable variations in sales volumes and variable costs over the past two years and Harlow believes the forecast should be carefully evaluated from a CVP viewpoint. The preliminary budget information for 2008 is:
Weeders
Hedge
Clippers
Leaf
Blowers
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
selling and administrative expenses are forecasted to be $600,000. Mistry has an effective tax rate of 40%.
Required:
a. Determine Mistry Company’s budgeted net income for 2008.
b. Assuming the sales mix remains as budgeted, determine how many units of each product
Mistry Company must sell in order to breakeven in 2008.
c. Determine the total dollar sales Mistry Company must sell in 2008 in order to earn an after-tax net income of $450,000.
d. After preparing the original estimates, Mistry Company determined its variable manufacturing cost of leaf blowers would increase 20% and the variable selling cost of hedge clippers could be expected to increase $1 per unit. However, Mistry has decided not to change the selling price of either product. In addition, Mistry has learned its leaf blower has been perceived as the best value on the market and it can expect to sell three times as many leaf blowers as any other product. Under these circumstances, determine how many units of each product Mistry Company would have to sell in order to breakeven in 2008.