Pringly Division

Pringly Division

First Strategy

Break even for first strategy

Estimated demand (units)

Estimated probability (units)

Estimated Outcome

150000

0.25

37,500

180000

0.5

90,000

200000

0.25

50,000

Total estimated demand (units)

177,500

Selling price per unit

170

Total sales revenue

30,175,000

Adjust Selling price

170-30

140

Contribution

24,850,000

Total fixed cost

20,000,000

Profit

4,850,000

Contribution Margin

Contribution / Total sales revenue

82.35%

Break even in $

Fix cost/Contribution Margin

24,285,714.29

Breakeven point in units

142,857.14

Margin of Safety (MOS)

Total sales - Break-even sales

5,889,285.71

Margin of Safety percentage

MOS in dollars / Total sales

19.52%

Return on investment

Profit / cost

24.25%

Residual income

Net income - Required return

850,000

I have computed breakeven point for the first strategy. According to my analysis the breakeven point for the first strategy based on given data is $ 24,285,714.29 while the breakeven point in units is 142,857.14. Therefore, in order to make the product successful under strategy one, company should sell 142,857.14 units of the product. It means that if company remains successful in selling 142,857.14 units of product then the company will cover the total cost and every unit sold after the mentioned level will bring profit for the company. The given estimated demand and probability is leading towards the total estimated demand of 177,500 units. The selling price of the product has potential to bring profit in the company's account. In the above mentioned analysis it is clearly shown that if company pursues the first strategy then company is expected to witness the profit of $4,850,000 which is well above than the desired target of $4m.

Margin of safety

The term margin of safety can be defined as excess amount of total sales over the break-even volume of sales. It shows the amount of sales which can decline before the company face losses. I have computed the margin of safety using the given data and as per my analysis, the margin of safety ...