Question 4
RC Sport assembles and sells low-end hockey goals, designed for youth and recreational hockey. At the moment, the
company is buying all of the components required to assemble each hockey goal from an external supplier: the goal
frame for $50, padding for $15, and netting for $10. The company employs part-time labor, paid $5 to assemble one
goal. The annual fixed cost, consisting of insurance, property taxes, and rent is $20,000. The selling price of one goal
is $125. Ignore taxes, and other possibly relevant information not given. (Note: Please include a written answer with
part d.)
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a) Calculate the contribution margin per unit.
b) Calculate the annual number of soccer goals that RC Sport needs to sell to break even.
c) Construct a table with Number of Units sold, Fixed Cost, Variable Cost, Total Cost, Total Revenue, and Profit
in the columns. Fill the units sold column with the following values: 0, 100, 200, 300, 400, 500, 600, 700,
800, 900, and 1000. Fill in the remaining columns with formulas and cell references, as necessary. Insert two
Excel Charts, one showing Number of Units (x) and Profit (y), the other showing Number of Units (x), Total
Revenue (y1), and Total Cost (y2). Use labels in your charts and make them look good for full credit!
d) RC Sport is considering producing the goal frame in its existing facility, instead of buying it from an external
supplier. In order to make the goal frames, it would need to buy a new machine. The machine would be
expected to last 7 years, and sold for $8,000 at the end of year 7. Its annual maintenance and operating cost
would be $50,000. RC would also need to buy $30 worth of material to produce each goal frame. The
padding and netting would continue to be purchased from the same external supplier for the same price,
and it would still cost $5 in labor cost to assemble one goal. Assuming RC Sport is able to produce and sell
10,000 hockey goals annually, what is the maximum purchase price of the machine that would make it
economical for RC Sport to make the hockey goal frames internally? Use the annual worth method,
assuming 15% MARR, and the Excel Goal Seek function to find the answer. Please make sure you save your
Excel file after running Goal Seek, so that I can verify your file to make sure that you did use the Goal Seek
function to arrive at your answer. (Do not use the "trial and error", or another method.) Provide a written
statement indicating the maximum economical price of the machine. Note: You will need to make up a
purchase price of the machine to start with, which you can then override with the Goal Seek function.
