18 Trenton and Company makes a single product requiring S50 of di aterials. Manu

Question

18 Trenton and Company makes a single product requiring S50 of di aterials. Manufacturing overhead is applied using a pre-determined overhead rate of 150% of direct-labor cost, One-third of manufacturing ove fixed. There is no under- or over-applied overhead, and the company has no beginning or ending inventory. The company reports the following results for August: Number of units sold Selling price per unit Manufacturing cost per unit Variable selling and admin. expenses per unit 8,000 $300 $200 $50 200 $290,000 ! How many units can sales go down before the company incurs a loss? 1,375 units 5,100 units 2,700 units 6,625 units A. C. D. E. None of the above

Explanation / Answer

Direct labour cost per unit = 200-50/2.5 = 60 per unit

Manufacturing overhead cost per unit = 150-60 = 90 per unit

Fixed manufacturing cost per unit = 90/3 = 30 per unit

Fixed cost = (30*8000+290000) = 530000

Variable cost per unit = 50+60+60+50 = 220 per unit

Contribution margin per unit = 300-220 = 80 per unit

Break even point unit = 530000/80 = 6625 units

So answer is d) 6625 units

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