Kalifo Company manufactures a line of electric garden tools that are sold in general hardware stores. The company's controller has just received the sales forecast for the coming year for Kalifo's three products: hedge clippers, weeders, and leaf blowers. Kalifo has experienced considerable variations in sales volumes and variable costs over the past two years, and the controller believes the forecast should be carefully evaluated from a cost-volume-profit viewpoint. The preliminary budget information for next year follows:
Hedge Leaf
Weeders Clippers Blowers
Unit sales 50,000 50,000 100,000
Unit selling price $28 $36 $48
Variable manufacturing cost per unit $13 $12 $25
Variable selling cost per unit $ 5 $ 4 $ 6
Next year, Kalifo's fixed manufacturing overhead is budgeted at $2,000,000, and the company's fixed selling and administrative costs are forecasted to be $600,000. Kalifo has a tax rate of 40 percent.
Required:
- Determine Kalifo Company's budgeted net income for next year.
- Assuming the sales mix remains as budgeted, determine how many units of each product Kalifo Company must sell in order to break even next year.
- After preparing the original estimates, management determined that its variable manufacturing cost of leaf blowers would increase 20 percent, and the variable selling cost of hedge clipper could be expected to increase by $1.00 per unit. However, management has decided not to change the selling price of either product. In addition, management 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 each of its other products. Under these circumstances, determine how many units of each product Kalifo Company would have to sell in order to break even next year.