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Mone3Hble Be (Useful Things), based in St. Petersburg, Russia,
makes robot, floor cleaning machines, and sells them to department
and specialty stores for $1,000 each. (I have translated the figures
from Russian rubles for you.....) Variable costs to manufacture the
product are $440 per unit, while fixed costs will total $2,800,000 this
year.
a. Find the contribution margin per unit, and the contribution rate
(CR) for this product.
b. Calculate this year's breakeven point in both units and dollars.
c. If Useful Things wants to make an after-tax income of $120,000,
how many units must the company sell, and what should be the
value of their sales in dollars?
The business income tax rate in Russia is currently 20%
(true!).
d. If they achieve the. level of sales, described in part c above,
calculate their margin of safety in units.
d. If they achieve the level of sales described in part c above;
calculate their margin of safety in units.
e. The company is considering making the product out of stronger
material than before, causing an increase to their variable costs of
$23/unit. If nothing else in their situation changes, find the new
breakeven point in units.
f. Do you think the company should change to the stronger material?
Support your answer with intelligent reasons. (Note; your decision
can go either way, but please support it!)
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