(CMA adapted) Rum Company has developed a new product that will be marketed for the first time during the next fiscal year. Although Rum's Marketing Department estimates that 35,000 units could be sold at $36 per unit, Rum's management has allocated only enough manufacturing capacity to produce a maximum of 25,000 units of the new product annually. The fixed costs associated with the new product are budgeted at $475,000 for the year. The variable costs of the new product are $16 per unit. Required:
(1) How many units of the new product must Rum sell during the next fiscal year in order to breakeven on the product? __________
(2) What is the profit Rum would earn on the new product if all the manufacturing capacity allocated by management is used and the product is sold for $36 per unit? __________
(3) The Marketing Department would like more manufacturing capacity to be devoted to the new product. What would be the percentage increase in net income for the new product if its unit sales could be expanded by 10% without any increase in fixed expenses and without any change in the unit selling price and unit variable cost? ___________
(4) Rum's management has stipulated that the new product must earn a profit of at least $125,000 in
the next fiscal year. What unit selling price would achieve this target profit if all of the manufacturing capacity allocated by management is used and all of the output can be sold at that selling price?
_____

Question

Quizplus · Accepted Answer

The Answer of (CMA adapted) Rum Company has developed a new product that will be marketed for the first time during the next fiscal year. Although Rum's Marketing Department estimates that 35,000 units could be sold at $36 per unit, Rum's management has allocated only enough manufacturing capacity to produce a maximum of 25,000 units of the new product annually. The fixed costs associated with the new product are budgeted at $475,000 for the year. The variable costs of the new product are $16 per unit. Required:
(1) How many units of the new product must Rum sell during the next fiscal year in order to breakeven on the product? __________
(2) What is the profit Rum would earn on the new product if all the manufacturing capacity allocated by management is used and the product is sold for $36 per unit? __________
(3) The Marketing Department would like more manufacturing capacity to be devoted to the new product. What would be the percentage increase in net income for the new product if its unit sales could be expanded by 10% without any increase in fixed expenses and without any change in the unit selling price and unit variable cost? ___________
(4) Rum's management has stipulated that the new product must earn a profit of at least $125,000 in
the next fiscal year. What unit selling price would achieve this target profit if all of the manufacturing capacity allocated by management is used and all of the output can be sold at that selling price?
_____

(CMA Adapted) Rum Company Has Developed a New Product That