Question

Campbell Manufacturing Company reported the following data regarding a product it manufactures and sells. The sales price is $42. $ 14 per unit 4 per unit Variable costs Manufacturing Selling Fixed costs Manufacturing Selling and administrative $169,000 per year $135,800 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 $196,800. c. Suppose that variable selling costs could be eliminated by employing a salaried sales force. If the company could sell 21,100 units, how much could it pay in salaries for salespeople and still have a profit of $196,800? (Hint: Use the equation method.) | $ 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 12,700 533,400 20,900 877,800 $

Answer 1

Selling price per unit = $42
Variable manufacturing cost per unit = $14
Variable selling cost per unit = $4
Contribution margin per unit = $24
Total fixed costs = $169,000 + $135,800 = $304,800

1). Breakeven point in units = Total fixed costs / Contribution margin per unit
= $304,800 / $24
= 12,700 units

Breakeven point in dollars = 12,700 * $42 = $533,400

2). Units required to obtain profit of $196,800 = (Total fixed cost + Profit) / Contribution margin per unit
= ($304,800 + $196,800) / $24
= 20,900

Dollar sales required = 20,900 * $42 = $877,800

3). If variable selling costs be eliminated:
Contribution margin per unit = $42 - $14 = $28
Total fixed costs = $304,800 + Salaries expense
Profit required = $196,800

Sales - Variable cost - Fixed costs = Profit
Contribution margin - Fixed costs = Profit
(21,100 units * $28) - ($304,800 + Salaries expense) = $196,800
$590,800 - ($304,800 + Salaries expense) = $196,800
Salaries expense = $590,800 - $304,800 - $196,800
Salaries expense = $89,200

Hence fixed cost of salaries is $89,200