Question

Waterloo Storage Products makes a four-drawer plastic storage cabinet on casters meant for use in garages and workshops. Each cabinet sells for $35. Data for last year’s operations follow:

Units in beginning inventory		0
Units produced		25,000
Units sold		21,500
Units in ending inventory		3,500
Variable costs per unit:
Direct materials	$	8
Direct labour		10
Variable manufacturing overhead		2
Variable selling and administrative		4
Total variable cost per unit	$	24
Fixed costs:
Fixed manufacturing overhead	$	75,000
Fixed selling and administrative		110,000
Total fixed costs	$	185,000

Required:

1. Assume that the company uses variable costing. Compute the unit product cost for one storage cabinet.

2. Assume that the company uses variable costing. Prepare a contribution format income statement for the year. (Do not leave any empty spaces; input a 0 wherever it is required.)

3. What is the company’s break-even point in terms of units sold? (Round your answer to the nearest whole number.)

Answer 1

1) Unit product cost

Direct material	8
Direct labor	10
variable manufacturing overhead	2
Unit product cost	20

2) Contribution margin income statement

Sales (21500*35)		752500
Less: Variable cost of goods sold
Direct material (21500*8)	172000
Direct labor	215000
variable manufacturing overhead	43000
Total Variable cost of goods sold		430000
Manufacturing margin		322500
variable selling and administrative expense		86000
Contribution margin		236500
Less; Fixed cost
Fixed manufacturing overhead	75000
Fixed selling and administrative expense	110000
Total Fixed cost		185000
Net income		51500

3) Break even unit = 185000/(35-24) = 16818 Units