Question

Batoo Company produces and sells disposable foil baking pans to retailers for $3.20 per pan. The variable costs per pan are as follows:

Direct materials $0.77 Direct labor 0.71 Variable overhead 0.60 Selling 0.32 Fixed manufacturing costs total $151,650 per year. Administrative costs (all fixed) total $28.350.

Required

1. Compute the number of pans that must be sold for Batoo to break even. 2. How many pans mustbe sold for Batoo to earn a before-tax profit of $12,600?

3. What is the unit variable cost? What is the unit variable manufacturing cost? Which is used in cost-volume-profit analysis, and why?

Answer 1

Batoo Company Requirement 1 Variable cost : 0.77 0.71 Direct materials Direct labor Variable overhead Selling Expense 0.6 0.32 2.4 Selling Price = 3.20 Contribution per unit = 3.20 - 2.40 = 0.80 Breakeven Point in units Fixed cost / Contribution per unit =( 151650 +28350 )/ 0.80 = 225000 pans Requirement 2 Target Sales in units = (Fixed Cost + Profit)/0.80 = (180000 + 12600)/0.80 = 240750 pans Requirement 3 Unit Variable cost 0.77 0.71 Direct materials Direct labor Variable overhead Selling Expense 0.6 0.32 2.4 Unit Variable manufacturing cost = 2.40 -0.32 = 2.08 The unit variable cost is used in cost-volume-profit analysis, since it includes all of the variable costs of the firm.