Reference no: EM132480413

Problem - Changes in Fixed and Variable Expenses; Break-Even and Target Profit Analysis

Neptune Company produces toys and other items for use in beach and resort areas. A small, inflat-able toy has come onto the market that the company is anxious to produce and sell. The new toy will sell for $3 per unit. Enough capacity exists in the company's plant to produce 16,000 units of the toy each month. Variable expenses to manufacture and sell one unit would be $1.25, and fixed expenses associated with the toy would total $35,000 per month.The company's Marketing Department predicts that demand for the new toy will exceed the 16,000 units that the company is able to produce. Additional manufacturing space can be rented from another company at a fixed expense of $1,000 per month. Variable expenses in the rented facility would total $1.40 per unit, due to somewhat less efficient operations than in the main plant.

Required -

1. Compute the monthly break-even point for the new toy in unit sales and in dollar sales.

2. How many units must be sold each month to make a monthly profit of $12,000?

3. If the sales manager receives a bonus of 10 cents for each unit sold in excess of the break-even point, how many units must be sold each month to earn a return of 25% on the monthly investment in fixed expenses?