# Breeden Security

## Breeden Security

• Submitted By: huhuhaha
• Date Submitted: 11/14/2015 2:07 PM
• Words: 594
• Page: 3

Breeden Security Inc (A)

Executive Summary
Breeden Security USA is a subsidiary of a large German radio equipment manufacturer. Breeden was set up to manufacture two products, the RC1 and the RC2. Based on past orders and data, Breeden estimates that they will be able to sell 120,000 RC1 units and 60,000 RC2 units. The parent company established an annual target net profit of \$210,000 for Breeden’s upcoming year. Although Breeden has been budgeting a monthly profit of \$20,000, Breeden’s president and controller want to verify that they will be able to meet the target goal.

Analysis
The controller started her analysis by finding what level of sales would be required to hit the target profit of \$210,000. The calculations show that they would need annual sales of \$3,720,251. This breaks down to annual sales of 124,628 units of RC1 and 53,378 units of RC2 (See Figure A). Based on these numbers, it looks as though Breeden underestimated the amount of RC1 units that they would need to sell.
The next analysis finds the break-even volume under the assumption that they will produce two RC1s for each RC2. In order to break-even, they would need to sell 104,667 units of RC1 and 51,551 units of RC2 (See Figure B). Because they expect to sell more monthly units than the break-even monthly units, they should not have a problem to break-even.
The third analysis concerns the manufacturing cost per unit if Breeden were to produce only 8,000 RC1 units and 4,000 RC2 units. This analysis shows the impact that the fixed and variable costs have on their budget. If the units produced and sold were lowered to 8,000 units of RC1 and 4,000 units of RC2 then Breeden Security would have a net loss before tax of \$10,200 (See Figure C). This is a result of the fixed overhead costs not being spread among as many units. Since Breeden has an agreement with a garage door manufacturer to sell them a minimum of 100,000 RC1 units a year, they will need to produce at least 8,334 units to...