Axle and Wheel Manufacturing currently produces and sells 1000 axles per month.
ID: 2378464 • Letter: A
Question
Axle and Wheel Manufacturing currently produces and sells 1000 axles per month. Its revenue is $125,000 per month. The following per unit data apply for sales to regular customers
Direct materials $30
Direct manufacturing labor $5
Variable manufacturing overhead $10
Fixed manufacturing overhead $40
Total manufacturing costs $85
1. What is the breakeven level in units and in dollars for Axle and Wheel?
2. The plant has capacity for 2,000 axles and is considering expanding production to 1,500 axles. What is the total monthly cost and operating income of producing 1500 axles?
3. What is the per-unit cost when producing 1500 axles?
4. If Axle and Wheel wants an operating profit of approximately $104,000, how many axles would it have to manufacture and sell?
Please show your work
Explanation / Answer
Total fixed costs = 40/unit*1000units = 40,000
Sales price per unit = sales/no of units = 125,000/1000 units = 125
Current profit per unit (before fixed costs) = sales price per unit - unit variable costs = 125-30-5-10 = 80
1. So breakeven units = fixed costs/profit per unit = 40,000/80 = 500 units
Breakeven in sales dollars = breakeven units * sales price per unit = 500*125 = 62,500
2. Fixed costs still remain at 40,000
Total monthly cost = (no of units * unit variable costs) + fixed cost = 1500*(30+5+10) +40,000 = 107,500
Operating income = sales-total costs = 1500*125-107,500 = 80,000
3. Per unit cost = total costs/no of units = 107,500/1500 = 71.67
4. Operating profit = 104,000
Profit before fixed costs = 104,000+40,000 = 144,000
Profit per unit (before fixed cost) = 80 (as seen above)
So no of units to be produced = 144,000/80 = 1800 units
Hope this detailed explanation helped ! Let me know in case of any queries.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.