Question

During a Skype session with Jordan and Taylor, you mention that your current cost model in accounting is break-even analysis. They are not following your explanation, but they say they will swing by with some brownies for a discussion. More brownies! This is paying off, except for those extra pounds. Selling price to Yumminess at $10 per tin. The cost is $8 per tin, which includes $6 of direct material and $1.50 of direct labor. Annual manufacturing overhead is estimated at $100,000 for the expected sales of 200,000 tins. Operating expenses are projected to be $80,000 annually. After looking over the costs for manufacturing overhead and operating expenses, you approximate that 85% of manufacturing overhead and 20% of operating expenses are variable costs.

Answer 1

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Jordan and Taylor
Answer 1
Item	Total cost	Variable cost %	Variable cost	Fixed cost
Manufacturing Overhead	100,000.00	85%	85,000.00	15,000.00
Operating expense	80,000.00	20%	16,000.00	64,000.00
Total fixed cost				79,000.00
Total fixed cost is $ 79,000.

Answer 2	Amount $
Direct material	6.00
Direct labor	1.50
Direct costs	7.50
Expected units	200,000.00
Total Direct costs	1,500,000.00
Add:
Variable- Manufacturing Overhead	85,000.00
Variable- Operating expense	16,000.00
Total variable costs	1,601,000.00
Answer 3	Amount $
Total variable costs	1,601,000.00
Expected units	200,000.00
Variable cost per unit	8.01
Sell price	10.00
Contribution per unit	2.00
Answer 4
Total fixed cost	79,000.00
Contribution per unit	2.00
Break even units	39,599.00
Answer 5
Break even units	39,599.00
Sell price	10.00
Break even Sales value	395,989.97
Expected sales units	200,000.00
Sell price	10.00
Sales value	2,000,000.00
If sales decrease by	1,604,010.03
Then it will start incurring losses.