Question

Tempo Company's fixed budget (based on sales of 18,000 units) for the first quarter reveals the following. Fixed Budget $3,708,000 $450,000 756,000 486,000 250,000 1,942,000 1,766,000 Sales (18,000 units x $206 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 126,000 252,000 100,000 478,000 300,000 270,000 240,000 250,000 1,060,000 228,000 $ (1) Compute the total variable cost per unit. (2) Compute the total fixed costs. (3) Compute the income from operations for sales volume of 16.000 units. (4) Compute the income from operations for sales volume of 20,000 units.

Answer 1

Solution 1:

Variable cost per unit = Direct materials +Direct labor + Production supplies + Sales commission + Packaging

= ($450,000 / 18000) + (($756,000 /18000) + ($486,000 / 18000) + ($126,000 / 18000) + ($252,000 / 18000)

= $25 + $42 + $27 + $7 + $14

= $115 per unit

Solution 2:

Total fixed costs = Plant manager salary + Advertising + Administrative salaries + Depreciation - Office equipment + Insurance + office rent

= $250,000 + $100,000 + $300,000 + $270,000 + $240,000 + $250,000

= $1,410,000

Solution 3:

Income from operations at 16000 units = Contribution margin - Fixed costs

= ($206 - $115) * 16000 - $1,410,000 = $46,000

Solution 4:

Income from operations at 20000 units = Contribution margin - Fixed costs

= ($206 - $115) * 20000 - $1,410,000 = $410,000