Neptune Company produces toys and other items for use inbeach and resort areas. A small, inflatable toy has come onto themarket that the company is anxious to produce and sell. The new toywill sell for $5.50 per unit. Enough capacity exists in thecompany’s plant to produce 20,000 units of the toy each month.Variable costs to manufacture and sell one unit would be $2.75, andfixed costs associated with the toy would total $70,000 permonth.
The company’s Marketing Department predicts that demandfor the new toy will exceed the 20,000 units that the company isable to produce. Additional manufacturing space can be rented fromanother company at a fixed cost of $5,000 per month. Variable costsin the rented facility would total $3.00 per unit, due to somewhatless efficient operations than in the main plant.
Required:
1. Compute the monthly break-even point for the new toyin units and in total dollar sales. Show all computations in goodform.
2. How many units must be sold each month to make amonthly profit of $3,000?
3. If the sales manager receives a bonus of 5 cents foreach unit sold in excess of the break-even point, how many unitsmust be sold each month to earn a return of 4.9% on the monthlyinvestment in fixed costs?
