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During a Skype session with Jordan and Taylor, you mention that your current cost model in...

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Accounting

During a Skype session with Jordan and Taylor, you mention thatyour current cost model in accounting is break-even analysis. Theyare not following your explanation, but they say they will swing bywith some brownies for a discussion. More brownies! This is payingoff, except for those extra pounds.

Selling price to Yumminess at $10 per tin. The cost is $8 pertin, which includes $6 of direct material and $1.50 of directlabor. Annual manufacturing overhead is estimated at $100,000 forthe expected sales of 200,000 tins. Operating expenses areprojected to be $80,000 annually.

After looking over the costs for manufacturing overhead andoperating expenses, you approximate that 85% of manufacturingoverhead and 20% of operating expenses are variable costs.

1. What is the TOTAL fixed cost?

2. What is the TOTAL variable cost?

3. What is the contribution margin per UNIT? ( Do not round)

4. How many units are necessary to reach break - even?

5. Jordan is concerned that they will not be able to sell200,000 tins of brownies. Given 200,000 tins as their expectedsales level, what is the decrease of total sales dollars that theyendure before they incur a net loss?

Answer & Explanation Solved by verified expert
4.3 Ratings (892 Votes)

Variable expense Fixed expense
Manufacturing overhead 100000*.85=85000 100000-85000= 15000
Operating expense 80000*.20=16000 80000-16000= 64000
Total 101000 79000

1)Total fixed cost = 79000

2)Total variable cost = 101000

3)variable manufacturing overhead and operating cost per unit = 101000/200000= $ .505 per unit

total variable cost=6 direct material+ 1.5 labor + .505 = 8.005

contribution per unit = price -variable cost

              = 10-8.005

              = 1.995

4)units to breakeven = fixed cost / contribution per unit

     = 79000/1.995

         = 39599 units

5)decrease of total sales dollars that they endure before they incur a net loss = selling price [expected sales - breakeven sales]

    = 10 [200000-39599]

    = $ 1604010 decrease before they incur loss
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