Question

QuickCo.QuickCo.

Manufacturing manufactures 256 GB SD cards​ (memory cards for mobile​ phones, digital​ cameras, and other​ devices). Price and cost data for a relevant range extending to​ 200,000 units per month are as​ follows:

25.00 Sales price per unit: (current monthly sales volume is 120,000 units) .... $ Variable costs per unit: Direct materials Direct labor ................. Variable manufacturing overhead Variable selling and administrative expenses Monthly fixed expenses: Fixed manufacturing overhead ..............................$ Fixed selling and administrative expenses ... ..........$ 6.60 7.00 2.40 1.90 241,900 327.900

Answer 1

Quick Co. Requirement 1 Sales price per unit - Variable cost per unit = Contribution margin per unit 25 - 17.9 = 7.1 Contribution Margin % = 7.1/25 = 28.4% Total Contribution Margin = Contribution Margin per unit x Current Sales = 7.1 x 120000 = 852000 Requirement 2 150000 7.1 Sales volume (units) Unit contribution margin Contribution margin Less: Fixed expenses Operating income 1065000 569800 495200 Requirement 3 Sales revenue Contribution margin ratio Contribution margin Less: Fixed expenses Operating income 4500000 28.40% 1278000 569800 708200 Requirement 4 Break even point in units = Fixed cost / Contribution Margin per unit = 569800 / 7.1 = 80254 units Break even point in dollars = Fixed cost / Contribution Margin % = 569800 / 28.4% = 2006338

Requirement 5 Target Units = Fixed cost +Target profit/Contribution Margin per unit = (569800 + 260400) / 7.1 = 116930 units Requirement 6 Labour costs = 7 x 1.09 = 7.63 Fixed costs = 569800 + 24400 = 594200 Break even point in units = Fixed cost / Contribution Margin per unit = 594200 / 6.47 = 91839 units Sales price per unit - Variable cost per unit = Contribution margin per unit 25 - 17.9 + 7 - 7.63 = 6.47 Requirement 7 Operating leverage factor = Contribution margin / Operating income = 1065000 / 495200 = 2.15 Requirement 8 Increase in volume x Operating leverage factor = Increase in operating Income 3% x 2.15 = 6.45%

Requirement 9 Margin of Safety = Sales - Breakeven Sales = ( 25 x 120000 ) - 2006338 = 993662 The margin of safety as a percentage of sales is = 993662 / 3000000 = 33.12% Requirement 10 512 GB Total 50 256 GB 25 17.9 7.1 0 Selling Price per unit Variable cost per unit Contribution margin per unit Sales mix Contribution margin Weighted average contribution margin per unit 28.4 50.4 10.08 The new target sales in units is (569800 + 260400 ) / 10.08 = 82361 Units 256 GB 82361 x 4/5 = 65889 units 512 GB 82361 x 1/5 = 16472 units