Robin Simmons is ready to complete a cost-volume-profit analysis for 2016 for the Stellar Packaging Products manufacturing plant to determine if the break-even point is achieved, given the expected decline in volume. Specific costs for production of 500,000 units include the following:
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Stellar Packaging Products
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Variable Costs Total
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Fixed Costs Total
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Raw materials
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$ 400,000
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|
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Direct manufacturing labor
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$ 200,000
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|
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Indirect manufacturing labor
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$ 105,000
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Factory Insurance & Utilities
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$ 63,000
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Depreciation -- Machinery and factory
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$ 38,500
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Repairs and maintenance -- factory
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$ 28,000
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Selling, marketing and distribution expenses
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$ 40,000
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$ 80,000
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General and administrative expenses
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$ 120,000
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There are no beginning or ending inventories. The total sales for 500,000 units produced are $2,000,000.
Instructions: Answer the following questions given the fact pattern above, showing all calculations.
- What is the contribution margin per unit for each chocolate bar produced, given the fact pattern above?
- What is the Stellar Packaging's U.S. division break-even point in units and dollars, given the fact pattern above?
- What is the Stellar Packaging's U.S. division margin of safety and degree of operating leverage, given the fact pattern above?
- Write a brief explanation (approximately two paragraphs) that Simmons might deliver to management to inform them of the analytical outcome, given the projected revenue and cost. Does the company have to implement a cost-reduction strategy in order to break even?