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Bremen Electronics

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In October 2005, Herman Klein, President, and Marlene Baer, Controller, of Bremen Electronics USA were checking the budgeted figures for Bremen's 2006 operations. They wanted to see what level of sales would be required to provide Bremen's parent company in Germany with its pre-tax target profit of $180,000 for the year.

In early 2005 Bremen Electronics, a large German manufacturer of radio equipment had set up a subsidiary in the United States to manufacture two products Bremen had successfully marketed in Europe. One was a miniature signaling device used primarily for remote operation of garage doors. These "RC1" units consisted of a signal sender, about half the size of a pack of cards, and a receiver which was a bit larger. A large manufacturer of motorized garage doors had agreed to take a minimum of 90,000 RC1 control units a year. Klein and Baer thought that 120,000 units was a reasonable target for 2006.

Bremen had also designed a similar device which could be used by a householder to turn on inside lights when arriving after dark. This unit, called "RC2," was slightly more expensive to make since the receiving part was a complete plug-in device while the RC1 receiver was a component of the garage door unit. Initially Bremen expected to sell the RC2 unit primarily through mail order catalogues. Klein and Baer projected sales of 39,600 units for 2006.

As a start, Baer developed the figures shown in Exhibits 1, 2, and 3, she recognized that the budget was only approximate since she expected that changes would be made to improve efficiency and perhaps the product design. In preparing breakevens, she decided to assume that parts, direct labor, and supplies could be considered variable with units produced, and all the rest would be fixed within the time frame and volume range being

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