The Sales Manager of Thompson Sales Is Considering Expanding Sales

Essay

The sales manager of Thompson Sales is considering expanding sales by producing three different versions of its product. Each will be targeted by the marketing department to different income levels and will be produced from three different qualities of materials. After reviewing the sales forecasts, the sales department feels that 70% of units sold will be the original product, 20% will be new model #1 and the remainder will be new model #2.
The following information has been assembled by the sales department and the production department.
$$\begin{array} { l r r r } & \text { Original } & \text { Model \#1 } & \text { Model \#2 } \\\text { Sales price (per unit) } & \$ 50.00 & \$ 35.00 & \$ 25.00 \\\text { Material cost } & 22.50 & 15.00 & 10.00 \\\text { Direct labor } & 10.00 & 7.50 & 5.00 \\\text { Variable overhead } & 7.00 & 5.25 & 3.50\end{array}$$
The fixed costs associated with the manufacture of these three products are $250,000 per year.
Required:
(a) Determine the number of units of each product that would be sold at the break-even point.
(b) Determine the break-even point if the sales estimates are instead 50% original product, 30% model #1, and the remainder model #2.