Question

Units Sold to Break Even, Unit Variable Cost, Unit Manufacturing Cost, Units to Earn Target Income Werner Company produces and sells disposable foil baking pans to retailers for $2.55 per pan. The variable cost per pan is as follows: Direct materials $0.26 Direct labor 0.53 Variable factory overhead 0.64 Variable selling expense 0.18 Fixed manufacturing cost totals $161,635 per year. Administrative cost (all fixed) totals $22,041. Required: 1. Compute the number of pans that must be sold for Werner to break even. x pans 2. Conceptual Connection: What is the unit variable cost? What is the unit variable manufacturing cost? Round your answers to the nearest cent. Unit variable cost Unit variable manufacturing cost $ Which is used in cost-volume-profit analysis? Unit variable cost 3. How many pans must be sold for Werner to earn operating income of $8,742? pans 4. How much sales revenue must Werner have to earn operating income of $8,742? Feedback Check My Work 1 & 2. Sum all unit variable costs. Classify each unit variable cost as manufacturing cost or period expense. Sum unit variable manufacturing costs. Consider what is needed in CVP analysis. 3 & 4. Set up break-even equation with the targeted income. Multiply units to achieve targeted income by price.

Answer 1

Selling price per unit = $2.55

Contribution margin per unit = Selling price per unit – Variable cost per unit

= 2.55 - 1.61

= $0.95

Fixed costs = Fixed manufacturing costs + Fixed administrative costs

= 161,635 + 22,041

= $183,676

1

Break even point (units) = Fixed cost/Contribution margin per unit

= 183,676/0.95

= 193,344 (rounded to next whole number)

2.

Variable cost per unit = Direct material + Direct labor + Variable factory overhead + Variable selling expense

= 0.26 + 0.53 + 0.64 + 0.18

= $1.61

Variable manufacturing cost per unit = Direct material + Direct labor + Variable factory overhead

= 0.26 + 0.53 + 0.64

= $1.43

3.

Units to be sold to get a target profit = (Fixed cost + Target profit)/Contribution margin per unit

= (183,676 + 8,742)/0.95

= 202,546

4.

Sales revenue to earn a target profit = Units to be sold to get a target profit x Selling price per unit

= 202,546 x 2.55

= $516,492

Exact answer may slightly differ due to rounding off.

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