Pringly division

Pringly Division

Answer1) Compute Break-Even at Each Level

Pringly Division

Estimated demand (units)

Estimated probability (units)

Estimated demand units

150,000

0.25

37,500 180,000

0.5

90,000 200,000

0.25

50,000 177,500

Break Even For Second Strategy 

 

 

Total sales revenue

( 170 * 177500)

30,175,000

Contribution

( 170 - 30 ) * 177500

24,850,000

Profit 

24,850,000 - 20,000,000

4,850,000

Contribution margin 

24,850,000 / 30,175,000

82%

Break even ratio

20,000,000 / 82.35 %

24,286,582

Break Even For Second Strategy 

 

 

Total sales revenue

( 200 * 177500)

35,500,000

Contribution

( 200 - 30 ) * 177500

30,175,000

Profit 

 30,175,000 - 25,000,000

5,175,000

Contribution margin 

30,175,000 / 35,500,000

85%

Break even ratio

25,000,000 / 85 %

29,411,765

Answer 2) Is the company likely to achieve its desired target profit of $4,000,000 or more? Support your discussion with financial analysis

Yes, the company has the potential to achieve the desired target profit of $4,000,000. From the following calculation it would be clear at what units company can achieve the targeted profit or more profit (www.accountingformanagement.com).

First Strategy

Sales Unit=(fixed Cost + Target Profit)/(unit Contribution Margin)

unit selling price

170

unit Variable price

30

Unit CM

140

 

(20000000+4000000)/140

Volume

21,053

Second Strategy

Sales Unit=(fixed Cost + Target Profit)/(unit Contribution Margin)

unit selling price

200

unit Variable price

30

Unit CM

170

 

(25000000+4000000)/170

Volume

170,588

In the above calculation we can see that if company wants to achieve desired target profit of $4,000,000 or more through first strategy the company should sale 21053 units of product or 170588 if company is going for second strategy. This assists in relationships which are helpful in making decisions, moreover, it is showing a direct relationships which help to understand the most complex relationships. Furthermore, the equilibrium point analysis is very important and useful while pricing the new product as it indicates the relationship between costs, volume and profits of t eh product, in order to determine income that must be met to reach a situation in which there is neither profit nor loss. The analysis depends on knowledge ...