Rosario Company Located In Buenos Aires, Argentina

Rosario Company Which Is Located In Buenos Aires Argentina Manufact

Rosario Company Which Is Located In Buenos Aires Argentina Manufact

Rosario Company, located in Buenos Aires, Argentina, manufactures a component used in farm machinery. Its fixed costs are 3,200,000 pesos annually. The variable cost per component is 1,200 pesos, and the selling price per component is 3,400 pesos. Last year, the company sold 5,500 components. Argentina’s peso was valued at 0.327 U.S. dollar at the time. Ignore income taxes in all calculations.

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The financial analysis of Rosario Company's operations provides critical insights into managing costs, pricing strategies, and profit optimization in a manufacturing setting within the Argentine economy. Calculating the break-even point, adjusting for fixed costs changes, assessing profitability, and strategizing sales pricing are fundamental aspects of effective managerial decision-making.

Calculation of the Break-even Point in Units

The break-even point (BEP) indicates the number of units that must be sold to cover all fixed and variable costs, resulting in zero net income. It is calculated as:

BEP (units) = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit)

Substituting the known values:

BEP = 3,200,000 / (3,400 - 1,200) = 3,200,000 / 2,200 ≈ 1455 units

Thus, the break-even point in units is approximately 1,455 components.

Impact of a 15% Increase in Fixed Costs on the Break-even Point

First, compute the new fixed costs:

New Fixed Costs = 3,200,000 x 1.15 = 3,680,000 pesos

Recalculating the BEP with increased fixed costs:

BEP = 3,680,000 / 2,200 ≈ 1673 units

Therefore, the new break-even point is approximately 1,673 components.

Calculation of the Company's Net Income for the Prior Year

Net income is calculated as total sales minus total costs (fixed plus variable).

Total sales:

Sales Revenue = 5,500 x 3,400 = 18,700,000 pesos

Total variable costs:

Variable Costs = 5,500 x 1,200 = 6,600,000 pesos

Total fixed costs:

Fixed Costs = 3,200,000 pesos

Total costs:

Total Costs = Fixed + Variable = 3,200,000 + 6,600,000 = 9,800,000 pesos

Net income:

Net Income = Total Sales - Total Costs = 18,700,000 - 9,800,000 = 8,900,000 pesos

So, Rosario's net income for the previous year was approximately 8,900,000 pesos.

Effect of Price Reduction to 2,900 pesos and Increased Orders on the BEP

The new selling price per component will be 2,900 pesos, and the company expects 1,400 more units sold annually due to price reduction.

New units sold:

Old units sold = 5,500


Additional units = 1,400


Total units = 5,500 + 1,400 = 6,900 units

Recalculating the BEP with the new price indicates the number of units needed to break even at this price point:

BEP = Fixed Costs / (New Selling Price - Variable Cost)


BEP = 3,200,000 / (2,900 - 1,200) = 3,200,000 / 1,700 ≈ 1882 units

Hence, the new break-even point with the reduced price is approximately 1,882 components.

Analysis of the Houston Armadillos' Break-even Games and Safety Margin

Scenario 1: Stadium Half Full, Ticket Price \$12

Stadium capacity: 8,400 seats

Actual tickets sold per game:

Tickets sold = 8,400 x 0.5 = 4,200

Contribution margin per ticket:

Selling price - Variable expense = 12 - 3 = 9 dollars

Contribution margin per game:

4,200 x 9 = 37,800 dollars

Fixed expenses per year: 189,000 dollars

Number of games to break even:

Games = Fixed Expenses / Contribution Margin per Game = 189,000 / 37,800 ≈ 5 games

Thus, the team must play approximately 5 games at this attendance level to break even.

Scenario 2: Stadium Capacity 11,000, Tickets \$11 Each, 45% Full

Tickets sold per game:

11,000 x 0.45 = 4,950 tickets

Contribution margin per ticket:

11 - 4 = 7 dollars

Contribution margin per game:

4,950 x 7 = 34,650 dollars

Season duration: 12 games

Total contribution margin for the season:

12 x 34,650 = 415,800 dollars

Safety margin is the difference between expected total contribution and fixed expenses:

Safety Margin = Total Contribution - Fixed Expenses = 415,800 - 170,000 = 245,800 dollars

Rounded to the nearest dollar, the safety margin is 245,800 dollars.

Scenario 3: Stadium Half Full, Break-even Ticket Price

Tickets sold at half capacity: 11,000 x 0.5 = 5,500

Contribution margin needed to break even:

Fixed Expenses / Number of tickets = 170,000 / 5,500 ≈ 30.91 dollars

The ticket price per ticket for break-even:

Break-even Price = Variable Cost + Contribution Margin per Ticket

Variable cost per ticket: 4 dollars

Contribution margin per ticket:

≈ 30.91 - 4 = 26.91 dollars

Thus, ticket price needed:

Price = Variable Cost + Contribution Margin = 4 + 26.91 ≈ 31 dollars

So, the team would need to charge approximately 31 dollars per ticket to break even at this attendance level.

Analysis of the College Pizza Operations

The College Pizza company faces fixed expenses of 40,000 dollars annually. The pizza's selling price is 10 dollars, with a variable cost of 5 dollars per pizza.

1. Break-even Point in Units

Contribution margin per pizza = 10 - 5 = 5 dollars


Break-even units = 40,000 / 5 = 8,000 pizzas

The company needs to sell approximately 8,000 pizzas annually to break even.

2. Contribution-margin Ratio

Contribution margin ratio = Contribution margin / Selling price = 5 / 10 = 0.5 or 50%

The contribution-margin ratio is 50%.

3. Break-even Sales Revenue

Break-even sales revenue = Fixed Expenses / Contribution-margin ratio = 40,000 / 0.5 = 80,000 dollars

The sales revenue needed to break even is approximately 80,000 dollars.

4. Pizzas Needed for Target Profit of 65,000 Dollars

Using the contribution margin per unit:

Required units = (Fixed Expenses + Target Profit) / Contribution margin per pizza


= (40,000 + 65,000) / 5 = 105,000 / 5 = 21,000 pizzas

The company must sell approximately 21,000 pizzas to achieve a net profit of 65,000 dollars.

References

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