Aero, Inc. requires sales of $2,000,000 to cover its fixed costs of $700,000 and

Question

Aero, Inc. requires sales of $2,000,000 to cover its fixed costs of $700,000 and to earn net income of $200,000. What percent are variable costs of sales?

45%

55%

35%

10%

A company incurs $1,800,000 of overhead each year in three departments: Processing, Packaging, and Testing. The company performs 800 processing transactions, 200,000 packaging transactions, and 2,000 tests per year in producing 400,000 drums of Oil and 600,000 drums of Sludge. The following data are available:

Production information for the two products is as follows:

The amount of overhead assigned to Sludge is

$690,000.

$971,250.

$900,000.

$828,750.

Volcker, Inc. manufactures recliners for the hotel industry. It has two products, the Heater and the Massager, and total overhead is $790,000. The company plans to manufacture 400 Heaters and 100 Massagers this year. In manufacturing the recliners, the company must perform 600 material moves for the Heater and 400 for the Massager; it processes 900 purchase orders for the Heater and 700 for the Massager; and the company's employees work 1,400 direct labor hours on the Heater product and 3,400 on the Massager. Volcker's total material handling costs are $500,000 and its total processing costs are $290,000. Using ABC, how much overhead would be assigned to the Heater product?

$559,583

$395,000

$326,875

$463,125

The break-even point is where

total variable costs equal total fixed costs.

total sales equal total fixed costs.

total sales equal total variable costs.

contribution margin equals total fixed costs.

45%

Explanation / Answer

Hi,

Please find the answer as follows:

Part 1:

Variable Cost = 2000000 (Sales) - 700000 (Fixed Cost) - 200000 (Contribution) = 1100000

Percent variable costs of sales = Variable Cost/Sales*100 = 1100000/2000000*100 = 55%

Part 2:

Amount of Overhead Assigned to Sludge = 750000*500/(300 + 500) + 750000*80000/(120000 + 80000) + 300000*400/(400 + 1600) = 828750

Part 3

Overhead Assigned to Heater = 500000*600/(600 + 400) + 290000*900/(900 + 700) = 463125

Part 4:

Contribution margin equals total fixed costs.

Thanks.

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