Break even method
Question:
The Maximus Mint Company (MMC) each year sells specially made sets of commemorative coins to the general public and coin collectors. The table below contains cost and revenue information for MMC.
Fixed Costs
Preparation and distribution of order forms $80,000
Depreciation on order processing equipment 10,000
Depreciation on coin prep. & pkg. equip. 30,000
Rent 20,000
Overhead Expenses 80,000
Tot. Fixed Costs $220,000
Variable Costs per Set
Preparation of coin blanks (labor & material) $ .50
Stamping Coins (labor) .20
Packaging Coins (labor & material) .10
Mailing costs 1.40
General and administrative costs .80
Total variable costs per set $ 3.00
Price per set
a) Determine the number of coin sets the MMC must sell in order to breakeven.
b-) How many sets must the MMC sell in order to show EBIT of $400,000?
c-) Suppose the Mint purchased new processing equipment, increasing depreciation expenses by $20,000. What would be then new brakemen number of coin sets the MMC must sell? How has the Total Operating Cost curve changed?
d-) Starting with the original fixed cost, variable cost, and price given above, suppose now that the mailing costs per se increase by $0.50. What would be the new breakeven number of sets the MMC must sell? How has the Total Operating Cost curve changed?
e-) Sketch a graphical operating breakeven analysis based on the breakeven determined in above. Label all items on your graph.
Show all your calculations.