Question

structions a. What is Crate Express's total manufacturing cost if it uses a variable costing approach? b. What is Crate Express's total manufacturing cost if it uses an absorption costing approach? c. What accounts for the difference in manufacturing costs between these two costing approaches? Problems: Set A Compute break-even alternative courses a P6.1A (LO 1), AN Midlands Inc. had a bad year in 2019. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling 80,000 units of product: net sales $2.000.000: total costs and expenses $2.235.000; and net loss $235,000. Costs and expenses consisted of the following. Total Variable Fixed Cost of goods sold $1,568,000 $1,050,000 $ 518,000 Selling expenses 517,000 92,000 425,000 Administrative expenses 150,000 58,000 92,000 $2,235,000 $1,200,000 $1,035,000 Management is considering the following independent alternatives for 2020. 1. Increase unit selling price 25% with no change in costs and expenses. 2. Change the compensation of salespersons from fixed annual salaries totaling $200,000 to total salaries of $40,000 plus a 5% commission on net sales. 3. Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50:50. Instructions a. Compute the break-even point in dollars for 2019. b. Compute the break-even point in dollars under each of the alternative courses of action for 2020. (Round to the nearest dollar.) Which course of action do you recommend? b. (2) $2,500,00 11 11 1 1 . 1 ELL

Answer 1

Answer-

selling cost per unit = 2,000,000 / 80,000 = $25

Variable cost per unit = 1,200,000 / 80,000 = $15

Contribution margin per unit = Sales per unit - variable expense per unit = $25 - $15 = $10

Contribution margin ratio = contribution margin per unit / sales per unit = $10 / $25 = .40

Break even point = Fixed cost / contribution margin ratio

a) Break even point = 1,035,000 / .4 = 2,857,500

b)

per unit sale increasse by 25%

New sale price = 25*25% = $ 6.25 + $ 25 = $31.25

Contribution margin ratio = $31.25 - $15 / $31.25 = .52

Break evenpoint = $1,035,000 / .52 = $1,990,385

2.

Sales price per unit = $25

Variable cost per unit = $ 15 + 5%* $25 = $16.25

Fixed cost = $1,035,000 - $200,000 + $40,000 = $875,000

Contribution margin ratio = $25 - $16.25 / $25 = .35

Break evenpoint = $875,000 / .35= $2,500,000

3. Fixed cost = $1,035,000 + 784,000 - $518,000 = $1,301,000

variable cost per unit = (784,000 +92,000 +58,000 ) /80,000 = $11.675

Contribution margin ratio = 25-11.675 / 25= .533

Break even point = 1,301,000 / .533 = $2,440,900

SO the 1st alternative is the best .