Question

Tempo Company's fixed budget (based on sales of 10,000 units) for the first quarter reveals the following. Fixed Budget $2,170,000 $230,000 430,000 270,000 30,000 960,000 1,210,000 Sales (10,000 units * $217 per unit) Cost of goods sold Direct materials Direct labor Production supplies Plant manager salary Gross profit Selling expenses Sales commissions Packaging Advertising Administrative expenses Administrative salaries Depreciation-office equip. Insurance Office rent Income from operations 80,000 160,000 100,000 340,000 80,000 50,000 20,000 30,000 180,000 $ 690,000 (1) Compute the total variable cost per unit. (2) Compute the total fixed costs. (3) Compute the income from operations for sales volume of 8,000 units. (4) Compute the income from operations for sales volume of 12,000 units.

Answer 1

Ans. 1	Variable cost per unit = Particular variable cost / Units sold
	Direct materials	$230,000 / 10,000	$23.00	per unit
	Direct labor	$430,000 / 10,000	$43.00	per unit
	Production supplies	$270,000 / 10,000	$27.00	per unit
	Sales commissions	$80,000 / 10,000	$8.00	per unit
	Packaging	$160,000 / 10,000	$16.00	per unit
	Total variable cost per unit		$117.00	per unit
Ans. 2	Fixed costs:
	Plant manager salary		$30,000
	Advertising		$100,000
	Administrative salaries		$80,000
	Depreciation - Office equipment		$50,000
	Insurance		$20,000
	Office rent		$30,000
	Total fixed cost		$310,000
Ans. 3
	Particulars	Amount
	Sales (8,000 *$217)	$1,736,000
	Less: Variable expenses (8,000 * $117)	$936,000
	Contribution margin	$800,000
	Less: Fixed expenses	$310,000
	Income from operations	$490,000
Ans. 4	Particulars	Amount
	Sales (12,000 *$217)	$2,604,000
	Less: Variable expenses (12,000 * $117)	$1,404,000
	Contribution margin	$1,200,000
	Less: Fixed expenses	$310,000
	Income from operations	$890,000
	*Sales = Selling price * Sales units
	*Variable expenses = Variable cost per unit * Sales units
	*Fixed expenses remain constant on each level of sales.