Homework Answers
1) Calculation of Total variable and total fixed cost
| Total | Variable | Fixed | |
| Cost of goods sold | $3016000 | (3016000*70%)= $2111200 | (3016000*30%)= $904800 |
| Selling expenses | 1508000 | (1508000*75%)= 1131000 | (1508000*25%)= 377000 |
| Administrative expenses | 1508000 | (1508000*50%)= 754000 | (1508000*50%)= 754000 |
| Total | $3996200 | $2035800 |
Total variable costs= $3996200
Total fixed costs= $2035800
2) a) Unit variable cost= Total variable cost/Units
= $3996200/70200= $56.93
b) Unit contribution margin
Unit contribution margin= Selling price per unit-Unit variable cost
= $87-56.93= $30.07
3) Break even sales (units)= Fixed cost/Unit contribution margin
= $2035800/30.07= 67702 units
4) As it is given in the question that the proposed program will not affect the relationship between the sales and variable costs. So, the contribution margin will remain same.
New fixed costs= $2035800+52200= $2088000
Break even sales (units)= New fixed cost/Unit contribution margin
= $2088000/30.07= 69438 units
5) Sales (units)= (New fixed costs+Target income)/Unit contribution margin
= $(2088000+75400)/30.07= 71945 units
6)
| Sales ($6107400+522000) | $6629400 |
| Less: Variable costs (76200*$56.93) | -4338066 |
| Contribution margin | 2291334 |
| Less: Fixed costs (2035800+52200) | -2088000 |
| Income from operations | $203334 |
Increase sales units= $522000/87= $6000
Total units= 70200+6000= 76200
7) New fixed costs= $2035800+52200= $2088000
Income from operations= Sales-Variable costs-New fixed costs
= $6107400-3996200-2088000= $23200 income
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