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Case Study PF Corporation makes three different clothing fasteners in its manufacturing facility in North Carolina. Data...

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Accounting

Case Study

  • PF Corporation makes three different clothing fasteners in itsmanufacturing facility in North Carolina. Data concerning theseproducts appear below:

Product

V

M

N

Normal Annual Sales Volume

100,000

200,000

400,000

Unit Selling Price

$ 1.65

$ 1.50

$ 0.85

Variable Expenses per unit

$ 1.25

$ 0.70

$ 0.25

Total Fixed Expenses are $400,000 per year.

  • All the three products are sold in highly competitive markets,so the company is unable to raise its prices without losingunacceptable numbers of customers. Fixed Expenses for V, Mand N are $20,000, $80,000 and $60,000 respectively.
  • The company has an extremely effective lean production system,so there are no beginning or ending work in process or finishedgoods inventories. Make necessary assumptions, wherevernecessary.

Required:

  1. What is the company’s break-even point in dollar sales?
  2. Compute the break-even point for each product usingcontribution margin approach.
  3. Critically analyze all the three products and suggest whichproduct should be removed from the market with validjustifications.
  4. Discuss the usefulness of Break-Even Analysis to variousstakeholders such as customers, marketing departments and financedepartment of an organization.
  5. Critically evaluate the limitations of Break-Even Analysis

Answer & Explanation Solved by verified expert
4.1 Ratings (461 Votes)
Working Note as followsProductVMNTotalSalesUnits A100000200000400000Unitselling price    See Answer
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