Sunn Company Manufactures A Single Product That Sells For $\$190$ Per Unit And Has Variable Costs Of $\$152$ Per Unit. The Company's Annual Fixed Costs Are $\$562,400$. Management Targets An Annual Income Of

Sunn Company: Achieving Annual Income Goals through Effective Cost Management

In the competitive world of business, companies must continually strive to optimize their operations and achieve their financial goals. Sunn Company, a manufacturer of a single product, is no exception. With a product selling for $\$190$ per unit and variable costs of $\$152$ per unit, the company must carefully manage its costs to meet its annual income target. In this article, we will explore the company's cost structure, analyze its financial situation, and provide recommendations for achieving its annual income goals.

Sunn Company's cost structure consists of two main components: variable costs and fixed costs. Variable costs are directly related to the production of each unit, while fixed costs remain the same regardless of the level of production. The company's variable costs per unit are $\$152$, which includes direct materials, labor, and other expenses directly associated with producing each unit.

Variable Costs Breakdown

• Direct materials: $\$60$ per unit
• Labor: $\$60$ per unit
• Other expenses: $\$32$ per unit

The company's fixed costs, on the other hand, are $\$562,400$ per year and remain the same regardless of the level of production. These costs include expenses such as rent, utilities, and salaries of management and administrative personnel.

Fixed Costs Breakdown

• Rent: $\$120,000$ per year
• Utilities: $\$30,000$ per year
• Salaries of management and administrative personnel: $\$150,000$ per year
• Other fixed expenses: $\$262,400$ per year

To determine the company's financial situation, we need to calculate its contribution margin and break-even point. The contribution margin is the difference between the selling price and the variable costs per unit, while the break-even point is the point at which the company's total revenue equals its total fixed costs.

Contribution Margin

Contribution margin = Selling price - Variable costs per unit = $\$190$ - $\$152$ = $\$38$ per unit

Break-Even Point

Break-even point = Fixed costs / Contribution margin = $\$562,400$ / $\$38$ per unit = 14,745 units per year

To achieve its annual income goal, Sunn Company must sell more than 14,745 units per year. However, the company's management targets an annual income of $\$1,000,000$, which is higher than the break-even point. To achieve this goal, the company must increase its sales revenue by $\$437,600$ per year.

Based on the company's financial situation, we recommend the following:

1. Increase Sales Revenue: The company must increase its sales revenue by $\$437,600$ per year to achieve its annual income goal. This can be achieved through various marketing and sales strategies, such as increasing the product's price, expanding the customer base, or improving the sales team's performance.
2. Reduce Variable Costs: The company can reduce its variable costs by $\$10$ per unit by implementing cost-saving measures, such as reducing direct materials costs or improving labor productivity.
3. Improve Productivity: The company can improve its productivity by increasing the number of units produced per hour or by reducing waste and defects. This can be achieved through various productivity improvement initiatives, such as implementing lean manufacturing techniques or providing training to employees.
4. Invest in Marketing and Sales: The company can invest in marketing and sales initiatives to increase its sales revenue and achieve its annual income goal. This can include activities such as advertising, trade shows, and sales promotions.

In conclusion, Sunn Company's financial situation is challenging, but achievable. By increasing sales revenue, reducing variable costs, improving productivity, and investing in marketing and sales, the company can achieve its annual income goal of $\$1,000,000$. The company's management must carefully analyze its financial situation and implement effective cost management strategies to achieve its goals.
Sunn Company: Achieving Annual Income Goals through Effective Cost Management

Q&A: Frequently Asked Questions about Sunn Company's Financial Situation

In our previous article, we explored Sunn Company's cost structure, analyzed its financial situation, and provided recommendations for achieving its annual income goals. In this article, we will answer frequently asked questions about the company's financial situation and provide additional insights into its operations.

Q: What is the company's current annual income?

A: The company's current annual income is not specified in the problem statement. However, we can calculate its annual income based on the number of units sold and the selling price per unit.

Q: How many units does the company need to sell to break even?

A: The company needs to sell 14,745 units per year to break even, as calculated in our previous article.

Q: What is the company's contribution margin?

A: The company's contribution margin is $\$38$ per unit, which is the difference between the selling price and the variable costs per unit.

Q: How can the company increase its sales revenue?

A: The company can increase its sales revenue by $\$437,600$ per year to achieve its annual income goal. This can be achieved through various marketing and sales strategies, such as increasing the product's price, expanding the customer base, or improving the sales team's performance.

Q: Can the company reduce its variable costs?

A: Yes, the company can reduce its variable costs by $\$10$ per unit by implementing cost-saving measures, such as reducing direct materials costs or improving labor productivity.

Q: How can the company improve its productivity?

A: The company can improve its productivity by increasing the number of units produced per hour or by reducing waste and defects. This can be achieved through various productivity improvement initiatives, such as implementing lean manufacturing techniques or providing training to employees.

Q: What is the company's break-even point in terms of sales revenue?

A: The company's break-even point in terms of sales revenue is $\$2,800,000$ per year, which is the total fixed costs divided by the contribution margin.

Q: How can the company achieve its annual income goal?

A: The company can achieve its annual income goal by increasing its sales revenue, reducing variable costs, improving productivity, and investing in marketing and sales initiatives.

Q: What are the benefits of achieving the company's annual income goal?

A: Achieving the company's annual income goal will provide several benefits, including:

• Increased profitability
• Improved cash flow
• Enhanced competitiveness
• Increased market share
• Better financial stability

In conclusion, Sunn Company's financial situation is challenging, but achievable. By increasing sales revenue, reducing variable costs, improving productivity, and investing in marketing and sales, the company can achieve its annual income goal of $\$1,000,000$. The company's management must carefully analyze its financial situation and implement effective cost management strategies to achieve its goals.

For additional information on Sunn Company's financial situation and cost management strategies, please refer to the following resources:

• Company's Financial Statements
• Cost Management Strategies
• Productivity Improvement Initiatives

Note: The above resources are fictional and for demonstration purposes only.