Break Even Analysis with Changing Information
Off Road, Inc. (ORI) sells a dune buggy accessory: a gun rack for the roll bar. Actual 2002 and estimated/projected 2003 cost information for the accessory are presented below.
Estimated Actual
2003 2002
Sales* 100,000 89,985
Cost of goods sold**
Direct materials 22,000 17,140
Direct labor 5,000 4,200
Variable manufacturing overhead 6,000 5,185
Fixed manufacturing overhead 11,000 13,475
Gross profit 56,000 49,985
Selling Expenses:
Sales salaries 12,000 11,500
Sales commissions 5,000 4,500
Depreciation, sales equipment 2,000 2,000
Administrative expenses:
Office salaries 12,000 11,200
Depreciation, office equipment 1,600 1,400
Rent 5,000 4,500
Insurance 1,400 1,100
Operating Income 17,000 13,785
*Sales are based on a selling price of $105 per unit in 2002 and, due to competition, $100 per unit in 2003.
**Units produced = units sold
Management has asked you to determine the level of sales necessary for this product to "break even" in 2003.
