Breeden Electronics USA is a new venture headed by a department of a German firm. It hopes to manufacture two items – both electronic signaling technologies. The president of the department, Herman Klein, has requested the controller. Marlene Baer, to calculate a number of break-even sales numbers as they evaluate the adequate sales level needed to match the profit expectations quoted by the mother company. Baer is needed to compute different break even analyses and take into account the effect on revenue if the manufacturing exceeds the demand for the products. This is the first part, of a total of two cases, which may be used to understand how costing programs and systems developed. The primary problem explored in both the cases is: in case A, the organization is shown to follow a conservative costing design. The main concern of the case pertains to the break even figures, and the effect of inventory stocking on the revenue streams. Case B (UV1779) brings forward the utilization of ABC system to distribute costs so that the organization can assess the product as well as the customer profitability. The two cases may be discussed separately in two classes, or in one class together.
What level of sales would be required to provide the parent company with its target profit of $210,000 for the year?
What’s our break-even volume assuming our mix stays the same—two RC 1s for each RC 2?
What’s our manufacturing cost per unit if we produce only 8,000 RC1 units and 4,000 RC2 units per month?
What’s our profit if each month we only sell 8,000 RC1s and 4,000 RC2s, but we produce 10,000 RC1s and 5,000 RC2s, assuming the unsold units go into finished goods inventory?