Managerial Accounting- Cheryl Montoia - 1234 Words

Cheryl Montoya picked up the phone and called her boss, Wes Chan, the vice president of marketing at Piedmont Fasteners Corporation: â€Å"Wes, I’m not sure how to go about answering the questions that came up at the meeting with the president yesterday:’ â€Å"What’s the problem?† â€Å"The president wanted to know the break-even point for each of the company’s products, but I am having trouble figuring them out:’ â€Å"I’m sure you can handle it, Cheryl. And, by the way, I need your analysis on my desk tomorrow morning at 8:00 sharp in time for the follow-up meeting at 9:00.† Piedmont Fasteners Corporation makes three different clothing fasteners in its manufacturing facility in North Carolina. Data concerning these products appear below: Total†¦show more content†¦(We usually take a tally of how many students allocated the common fixed costs using each possible allocation base before proceeding.) For example, the common fixed costs are allocated on the next page based on sales. Allocation of common fixed expenses on the basis of sales revenue: Velcro Metal Nylon Total Sales $165,000 $300,000 $340,000 $805,000 Percentage of total sales 20.497% 37.267% 42.236% 100.0% Allocated common fixed expense* $49,193 $ 89,441 $101,366 $240,000 Product fixed expenses 20,000 80,000 60,000 160,000 Allocated common and product fixed expenses (a) $69,193 $169,441 $161,366 $400,000 Unit contribution margin (b) $0.40 $0.80 $0.60 â€Å"Break-even† point in units sold (a) à · (b) 172,983 211,801 268,943 *Total common fixed expense Ãâ€" percentage of total sales If the company sells 172,983 units of the Velcro product, 211,801 units of the Metal product, and 268,943 units of the Nylon product, the company will indeed break even overall. However, the apparent break-evens for two of the products are higher than their normal annual sales. Velcro Metal Nylon Normal annual sales volume 100,000 200,000 400,000 â€Å"Break-even† annual sales 172,983 211,801 268,943 â€Å"Strategic† decision drop drop retain It would be natural for managers to interpret a break-even for a product as the level of sales below which the company would be financially better off dropping the