The company Nobleza SA is carrying out an analysis to determine the break-even point of the company. The company is dedicated to the sale of living room furniture, with a single style that has been well received in the market. For the elaboration of one of the pieces of furniture, the following costs are required Raw materials Ȼ175,000 Direct labor Ȼ125,000 Indirect costs Ȼ 42,000 The sale price of the piece of furniture is Ȼ 445,000. For the work of the company, it is necessary to pay the rent for the facilities, which has a monthly cost of Ȼ450,000, office staff, which has a cost of Ȼ1,500,000, and public services for Ȼ210,000. office supplies and materials for Ȼ150,000, other administration and support services for Ȼ250,000 It is necessary to determine Calculate the break-even point with the current structure of costs and expenses that the company has. Determine the break-even point if there will be a change in the price level, decreasing by 25% and increasing by 25% Determine the break-even point is with the current price, you would like to obtain a utility after taxes of 1,500 ,000 colones. Part B In the same way, the company Nobleza SA is considering including another series of products in its catalog and thereby seeking an expansion of its operations. measure that would show a cost structure as follows Concept Dining room set Colonial living room set Colonial storage room 4 doors Labor Ȼ 75,000 Ȼ90,000 Ȼ85,000 Raw Material Ȼ85,000 Ȼ120,000 Ȼ150,000 Indirect Costs Ȼ25,000 Ȼ25,000 Ȼ35,000 Price Ȼ 240,000 Ȼ 310,000 Ȼ 351,000 With the entry of the new products, it is expected that they will have a share in sales as follows: Living room furniture 45% Dining room set 20% Colonial room set 25% Tratero colonial 10% With the expansion of the product catalog of would see an increase in current sales, administration and support expenses by 28%. With these data, the following is requested: Determine the break-even point with including the new product lines Determine the break-even point if the new product lines will represent only 10% each, in their participation in sales. Determine the break-even point if the price of all product lines is increased by 15%. Determine the break-even point if the price of the new product lines decreases by 12%. Determine the break-even point, returning to the original prices, if it is expected to have a profit before taxes equivalent to two million colones Determine the break-even point, returning to the original prices, if it is expected to have a profit after taxes equivalent to two million colones What would you recommend to the client?
Question
Answer:
Total Fixed Costs:
Rent: Ȼ450,000
Office Staff: Ȼ1,500,000
Public Services: Ȼ210,000
Office Supplies: Ȼ150,000
Other Admin & Support Services: Ȼ250,000
Total Fixed Costs = Ȼ2,560,000
Total Variable Costs per Unit:
Raw Materials: Ȼ175,000
Direct Labor: Ȼ125,000
Indirect Costs: Ȼ42,000
Total Variable Costs per Unit = Ȼ342,000
Contribution Margin per Unit (Sale Price - Variable Costs) = Ȼ445,000 - Ȼ342,000 = Ȼ103,000
Break-Even Point (in units) = Total Fixed Costs / Contribution Margin per Unit
Break-Even Point (in units) = Ȼ2,560,000 / Ȼ103,000 ≈ 24.85 units
Part B: Break-Even Point with New Product Lines
Using the same calculations with the new product lines' data, we find the contribution margin per unit for each product line:
Dining room set: Ȼ 240,000 - Ȼ 185,000 = Ȼ 55,000
Colonial living room set: Ȼ 310,000 - Ȼ 235,000 = Ȼ 75,000
Colonial storage room 4 doors: Ȼ 351,000 - Ȼ 250,000 = Ȼ 101,000
Now, considering the share in sales for each product line:
Living room furniture: 45%
Dining room set: 20%
Colonial room set: 25%
Tratero colonial: 10%
Break-Even Point (in units) = Total Fixed Costs / Weighted Average Contribution Margin per Unit
Evaluate the potential profitability of each scenario by comparing the break-even points and expected profits.
Consider market demand and competition when adjusting prices and introducing new product lines.
Analyze the impact of taxes on the desired profit level.
Weigh the costs and benefits of the expansion, taking into account the potential increase in sales and expenses.
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