Problem: Cost Volume Profit Analysis - Mistry Company
Mistry Company manufactures a line of electric garden tools that are sold in general hardware stores. Thecompany's controller, Sylvia Harlow, has just received the sales forecast for the coming year for Mistry'sthree products: weeders, hedge clippers, and leaf blowers. Mistry has experienced considerable variationsin sales volumes and variable costs over the past two years, and Harlow believes the forecast should becarefully evaluated from a CVP viewpoint. The preliminary budget information for 20x8 is presented as follows:
Hedge Leaf Weeders Clippers Blowers
Unit sales 50,000 50,000 100,000Unit selling price $28 $36 $48Variable manufacturing cost per unit $13 $12 $25Variable selling cost per unit $5 $4 $6 For 20x8, Mistry's fixed factory overhead is budgeted at $2,000,000, and the company's fixed selling andadministrative expenses are forecasted to be $600,000. Mistry has an effective tax rate of 40%.
Required:
a. Determine Mistry Company's budgeted net income for 20x8.
b. Assuming the sales mix remains as budgeted, determine how many units of each product MistryCompany must sell in order to break even in 20x8.
c. Determine the total dollar sales Mistry Company must sell in 20x8 in order to earn an aftertax netincome of $450,000.
d. After preparing the original estimates, Mistry Company determined that its variable manufacturing cost of leaf blowers would increase 20% and the variable selling cost of hedgeclippers could be expected to increase $1 per unit. However, Mistry has decided not to change theselling price of either product. In addition, Mistry has learned that its leaf blower has been perceived as the best value on the market, and it can expect to sell three times as many leaf blowers as any other product. Under these circumstances, determine how many units of each product Mistry Company would have to sell in order to break even in 20x8