Question

hello, I need to answer questions 1-5 based on the scenerio. please give me explanations on the answers, especially question #5. I have to be able to explain how I got each answer. thank you!

During a Skype session with Jordan and Taylor, you mention that your current cost model in accounting is break-even analysis. They are not following your explanation, but they say they will swing by with some brownies for a discussion. More brownies! This is paying off, except for those extra pounds. Selling price to Yumminess at $10 per tin. The cost is $8 per tin, which includes $6 of direct material and $1.50 of direct labor. Annual manufacturing overhead is estimated at $100,000 for the expected sales of 200,000 tins. Operating expenses are projected to be $80,000 annually. After looking over the costs for manufacturing overhead and operating expenses, you approximate that 85% of manufacturing overhead and 20% of operating expenses are variable costs.

Answer 1

1.
Total Fixed Costs = $100000 x15% + 80000 x 80% = $79000

2.
Total variable Costs = 200000 x ($6+1.50) + $100000 x 85% + 80000 x 20% = $1601000

3.
Variable Cost per unit = $1601000 / 200000 = $8.005 or $8.01 per unit
Unit Contribution Margin = $10 - 8.01 = $1.99 per unit or $2 per unit

4.
Break even units = Fixed Costs / Unit contribution Margin
= $79000 / 2 = 39500 units or 39699 units

5.
In this question, it is basically asking for margin of safety, i.e. sales over break even sales.

= 200000 x $10 - 39500 x $10 = $1605000 or $1603010

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