Question

Werner Company produces and sells disposable foil baking pans to retailers for $2.95 per pan. The variable cost per pan is as follows: Direct materials $0.33 0.52 0.67 Direct labor Variable factory overhead Variable selling expense 0.13 Fixed manufacturing cost totals $305,334 per year. Administrative cost (all fixed) totals $41,636 Required: 1. Compute the number of pans that must be sold for Werner to break even 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? 3. How many pans must be sold for Werner to earn operating income of 59.1002

Answer 1

Calculation of BEP 1 Variable cost = Direct material + Direct labor + Variable factory overhead + Variable selling expanse Variable cost per unit = $0.33 + $0.52 + $0.67 + $0.13 = 1.65 Total fixed costs = Fixed manufacturing cost + Administrative cost Total fixed cost = $305334 + $41636 = $ 346970 Contribution margin per unit = Selling price per unit - Variable cost per unit Contribution margin per unit = $2.95- $1.65 = $1.3 per unit Break even pans = Fixed cost / Contribution margin per unit Break even pans = $346970 / $1.3 = 266900 So, in order to break even, 266900 pans must be sold. 2 (2) Unit variable cost = $1.65 (as calculated in point (1) above) Unit variable manufacturing cost = Unit variable cost - Variable selling expanse Unit variable manufacturing cost = $1.65 - $0.13 = $1.52 In cost volume profit analysis, Unit variable cost is used. 33) For earning operating income $ 9100 Number of pans required to earn $9100 operating income = Fixed cost + $9100 / Contribution margin per unit Number of pans required to earn $9100 operating income = $346970 + $9100 / $1.3 Required Pans 273900 pans 4 Contribution margin ratio = Contribution margin per unit / Selling price per unit Contribution margin ratio = $1.3 / $2.95 = 44.0678% Sales revenue required to earn $9100 operating income = $346970 + $9100 / 44.00678% =356070/44.0678% $808005 Revenue * Kindly Comment down for any clarifications/ queries and please upvote.