Question

Fanning Manufacturing Company reported the following data regarding a product it manufactures and sells. The sales price is $46. $ 10 per unit 4 per unit Variable costs Manufacturing Selling Fixed costs Manufacturing Selling and administrative $164,000 per year $ 261,600 per year Required a. Use the per-unit contribution margin approach to determine the break-even point in units and dollars. b. Use the per-unit contribution margin approach to determine the level of sales in units and dollars required to obtain a profit of $240,000. c. Suppose that variable selling costs could be eliminated by employing a salaried sales force. If the company could sell 21,400 units, how much could it pay in salaries for salespeople and still have a profit of $240,000? (Hint: Use the equation method.) 13,300 611,800 | $ a. Break-even point in units Break-even point in dollars b. Required sales in units Required sales in dollars c. Fixed cost of salaries 20,800

Answer 1

a)
Selling price per unit	$46
Less: Variable manufacturing cost per unit	($10)
Less: Variable selling cost per unit	($4)
Contribution margin per unit (a)	$32
Fixed manufacturing costs	$164,000
Add: Fixed selling and administrative costs	$261,600
Total Fixed Costs (b)	$425,600
Break-even point in units (b/a)	13,300
Contribution margin per unit (a)	$32
Selling price per unit (c )	$46
Contribution margin ratio (a/c*100)	70%
Break-even point in dollars (b/c)	$611,800
b)
Total fixed costs (a)	$425,600
Desired profit (b)	$240,000
Contribution margin per unit (c )	$32
Level of sales in units to obtain profit of $240,000 [(a+b)/c]	20,800
Total fixed costs (a)	$425,600
Desired profit (b)	$240,000
Contribution margin ratio (c )	70%
Level of sales in dollars to obtain profit of $240,000 [(a+b)/c]	$950,857
c)
Sales revenue (21,400 units * $46 per unit)	$984,400
Less: Variable costs (21,400 units * $10 per unit)	($214,000)
Contribution margin	$770,400
Less: Current fixed costs excluding new fixed sales salaries	($425,000)
Less: Desired profit	($240,000)
Fixed cost of salaries	$105,400