Homework Answers
1. Total Sales Revenue
Total Sales Revenue = 10,000 units X 1.05 X $150 = $1,575,000
2. Contribution Margin
| 1 | Selling Price per unit | $ 150.00 |
| 2 | Variable Cost per unit | |
| a. Direct Labour ( 150 x 0.09) | $ 13.50 | |
| b. Direct Material | $ 18.00 | |
| c. Variable Manufacturing Overhead | $ 7.50 | |
| d. Variable Selling Expenses | $ 1.50 | |
| 3 | Contribution Margin per unit (1-2) | $ 109.50 |
| 4 | Number of Units Sold | 10,500 |
| 5 | Total Contribution Margin (3 x 4) | $ 1,149,750.00 |
3. Total Fixed Expenses
| Fixed Manufacturing Overhead (10,000x$50) | $ 500,000.00 |
| Fixed Selling Expenses (10,000x$40) | $ 400,000.00 |
| Fixed Administrative Expenses (10,000x$15) | $ 150,000.00 |
| Incremental Advertising Cost ($5000x12months) | $ 60,000.00 |
| Total Fixed Expenses | $ 1,110,000.00 |
Notes:
1. The current Activity level of 10,000 units is taken as the current sales level
2. Estimated sales (units) = 10,000 units x 1.05 = 10,500 units
3. The Direct Labour cost reduced to 9% of sales = 150 x 0.09 = $13.5 per unit
4. Fixed expenses will not change with the change in the number of units produced and sold. Fixed expenses are period costs and Variable costs are product costs.
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