You want to use break-even and target profit analysis withrespect to the introduction of a new product in the marketplace.Your manager says you are wasting your time because the bestdetermination of profitability is the income statement after thethis product has been introduced. Explain why your manager iswrong.
You want to use break-even and target profit analysis withrespect to the introduction of a new product in the marketplace.Your manager says you are wasting your time because the bestdetermination of profitability is the income statement after thethis product has been introduced. Explain why your manager iswrong.
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Your company has developed this new product called Squeaky Doors. Why wait for a door that becomes squeaky when you can have new doors that squeak immediately.
The Marketing Manager is preparing their proposal to the CEO review meeting next week and asked you to help prepare the Break-Even analysis
The manager has supplied you with the following information about the new product:
Materials required
| Oak door | $250 Per door |
| 3 hinges | $24 The package of hinges includes 12 hinges and the total cost of the package is $24 |
| Door handle (one handle) | $38 per handle |
| Squeaky juice and stain (I.5 gallons) | $31 Per gallon |
The hinges come in a package of 12 items
Labor required to build the squeaky door
6 hrs
Labor rate is $21 per hour
The company also has the following monthly charges
Rent of production area $3,500
Insurance for area $1,500
Supervision $8,000
Depreciation of equipment $3,200
Advertising for new product $3,800
Other monthly charges $1,200
utilities (consider fixed) $1,900 $23,100
Selling price $750
Required
1 Prepare the break-even units for the project, show you work
2 Prepare an income statement to prove your break-even units
3 Assume the monthly target profit before taxes for this project is $16,000. Compute the number of units required to meet the target profit before taxes.
4 Prepare an income statement to prove the calculated units to achieve the number of units before taxes will equal the profit required.
5 The marketing research is indicating that there is an annual demand of 5,000 squeaky doors and the company will have 29% of the market. Explain if you were the CEO would you accept the new project, based on the data. Please explain
