Flip had sales of $10,000 (100 units at $100 per). Manufacturing costs consisted
ID: 1190054 • Letter: F
Question
Flip had sales of $10,000 (100 units at $100 per). Manufacturing costs consisted of direct labor $1,500, direct materials $1,400, variable factory overhead $1,000, and fixed factory overhead $500. The company did not maintain any inventories, so total cost of goods sold was $4,400. Selling expenses totaled $1,600 ($600 variable and $1,000 fixed), and administrative expenses totaled $1,500 ($500 variable and $1,000 fixed). Operating income was $2,500. Round all final answers to nearest dollar or whole number. Requirements: a. What is the breakeven point in sales dollars and in units if the fixed factory overhead increased by $1,700? b. What is the breakeven point in sales dollars and in units if costs remain as originally projected? c. What would be the operating income be if sales units increased by 25%
Explanation / Answer
Contribution:
Sales (100 units at $100 per) = $10,000
Variable Manufacturing costs:
direct labor = $1,500
direct materials = $1,400
variable factory overhead = $1,000
Variable selling expense = $600
variable administrative expense = $500
(total variable cost @ $50 / unit) = $5,000
CONTRIBUTION (@ $50 / unit) = $5,000
Required a. the breakeven point in sales dollars and in units if the fixed factory overhead increased by $1,700=
Fixed Costs = Fixed factory overhead + Fixed Selling expenses +
Fixed Administrative expenses + Addition Fixed Factory overhead
= $500 + $1,000 + $1,000 + $1,700 = $4,200
Break-Even Point = $4200 / $50 contribution
= 84 units OR
= $8,400 Sales
Required b.: the breakeven point in sales dollars and in units if costs remain as originally projected =
Fixed Costs = $ 2500
Break-Even Point = $2500 / $50 = 50 units
= $5,000 Sales
Required c.: the operating income be if sales units increased by 25%=
Total increased Sales volume = 100 + 25% = 125 units
Total Contribution on 125 units @ $50 / unit= $6,250
Less: Fixed Costs as originally planned = $2500
OPERATING INCOME on increased volume =$3750
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