Question

Required information The following information applies to the questions displayed below) This year Burchard Company sold 45,000 units of its only product for $18.00 per unit. Manufacturing and selling the product required $130,000 of fixed manufacturing costs and $190,000 of fixed selling and administrative costs. Its per unit variable costs follow. Material Direct labor (paid on the basis of completed units) Variable overhead costs Variable selling and administrative costs $ 5.69 4.00 0.5e @.30 Next year the company will use new material, which will reduce material costs by 70% and direct labor costs by 30% and will not affect product quality or marketability. Management is considering an increase in the unit selling price to reduce the number of units sold because the factory's output is nearing its annual output capacity of 50,000 units. Two plans are being considered. Under plan 1, the company will keep the selling price at the current level and sell the same volume as last year. This plan will increase income because of the reduced costs from using the new material. Under plan 2, the company will increase the selling price by 30%. This plan will decrease unit sales volume by 5%. Under both plans 1 and 2. the total fixed costs and the variable costs per unit for overhead and for selling and administrative costs will remain the same.

Answer 1

	Plan 1	Plan 2
Selling Price per unit	18	23.4
Units	45000	38250
Variable cost per unit	5.1	5.1
Contribution Margin per Unit	12.9	18.3
Contribution Margin Ratio = Contribution Margin/Sales	71.667%	78.205%
Break even point in dollars = Fixed costs/Contribution Margin ratio	446511.6279	409180.3279

1 2 Selling Price per unit 3 Units 4. Variable cost per unit 5 Contribution Margin per Unit 6 Contribution Margin Ratio = Contribution Margin/Sales 7 Break even point in dollars = Fixed costs/Contribution Margin ratio B Plan 1 Plan 2 18 =B2*1.3 45000 =B3*0.85 =5*30%+4*0.7+0.5+0.3 1=5*30%+4*0.7+0.5+0.3 =B2-B4 =C2-C4 =B5/B2 =C5/C2 =(130000+190000)/B6 =(130000+190000)/C6