Francois French manufactures cheese, which he normally sells at €20/kg, on which
ID: 2410202 • Letter: F
Question
Francois French manufactures cheese, which he normally sells at €20/kg, on which sales commission of 5% is paid. Plant capacity is 7,500 kg/month. Income tax is levied at 30%.
Fixed costs
Costs per kg.
Plant depreciation
€8,000
Direct materials
€4
Other plant costs
15,000
Direct labor
2
Corporate salaries
10,000
Var. factory O/H
3
Advertising
3,000
If sales are 5,000 kgs, which of the following is true?
Total contribution margin is €50,000
Ratio of total contribution margin to net income before taxes is 3.57
Taxes payable are €4,200
Operating leverage is 42%
All of the above
Fixed costs
Costs per kg.
Plant depreciation
€8,000
Direct materials
€4
Other plant costs
15,000
Direct labor
2
Corporate salaries
10,000
Var. factory O/H
3
Advertising
3,000
Explanation / Answer
1) Contribution margin per unit Sells 20 less:Variable expense Direct materials 4 Direct labor 2 Variable factory overhead 3 sales commission 20*5% 1 total variable expense 10 Contribution margin 10 2) total contribution (5,000*10)= 50,000 less:fixed cost Plant depreciation 8,000 other plant costs 15,000 corporate salaries 10,000 Advertising 3,000 total fixed cost 36,000 income before tax 14,000 less:income tax 14000*30%= 4200 net income 9,800 3) Ratio of total contribution margin to net income before taxes is 50,000/14,000 3.57 4) operating leverage = fixed cost/total cost 36,000/80,000 42% (total cost = fixed cost +variable cost) Answer - all of the above
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