Question

The following annual per unit cost data at an activity level of 10,000 units has been provided below. The company produces and sells only one product. $ Per Unit Sales 150.00 Direct labor Direct material Variable manufacturing overhead 15.00 18.00 7.50 50.00 1.50 Fixed manufacturing overhead Variable selling expenses Fixed selling expenses 40.00 Fixed administrative expenses 15.00 The relevant range is 8,000 - 13,000 units. You must enter your answer in the following format: $x,xxx The company is considering a price reduction approach to increase net income. The company believes that a 7% reduction in sales price will increase volume by 15%. Simultaneously, there will be a change in suppliers for direct material that will result in lowering direct material costs by 10%. Calculate the following: Total sales revenue Total contribution margin Total fixed expenses

Answer 1

Answers

[1] Total Sales revenue

A	Current sale price	$150.00
B = A x 7%	Reduction in sale price	$10.50
C = A - B	New selling price	$139.50
D	Current volume	10000
E = D x 15%	Increase in volume	1500
F = D+E	New sales unit	11500
G = C x F	Total sales revenue	$1,604,250	Answer

[2] Total Contribution margin

A	Selling price per unit		$139.50
	Direct Labor	$15.00
	Direct Material	$16.20
	Variable manufacturing overhead	$7.50
	Variable selling expenses	$1.50
B	Total variable cost per unit		$40.20
C = A - B	Contribution margin per unit		$99.30
D = C x 11500 units	Total contribution margin		$1,141,950	Answer

[3] Total Fixed expense

Fixed manufacturing overhead	$500,000
Fixed selling expense	$400,000
Fixed adminsitartive expense	$150,000
Total Fixed Expense	$1,050,000	Answer