Santana Rey expects sales of Business Solutions’s line of computer workstation f

Question

Santana Rey expects sales of Business Solutions’s line of computer workstation furniture to equal 300 workstations (at a sales price of $4,000 each) for 2018. The workstations’ manufacturing costs include the following.

The selling expenses related to these workstations follow.

Santana is considering how many workstations to produce in 2018. She is confident that she will be able to sell any workstations in her 2018 ending inventory during 2019. However, Santana does not want to overproduce as she does not have sufficient storage space for many more workstations.

2. Complete the following income statements using variable costing.

Direct materials $ 710 per unit Direct labor $ 320 per unit Variable overhead $ 50 per unit Fixed overhead $ 24,000 per year

Explanation / Answer

Answer 1 We have to find out the break even point i.e.no.of work stations Sanatana must produce and sold to have no profit no loss situation. Break even point in units = Fixed expenses / Contribution margin per unit Contribution margin per unit = Selling price per unit - Variable cost per unit = $4000 - [$710+$320+$50+$45] = $2875 per unit Fixed expenses = $24000 + $3500 = $27,500 Break even point in units = $27,500 / $2875 = 9.57 i.e.10 units Sanatana must produce and sold 10 work stations to have no profit no loss situation. Answer 2 Income statement using Variable costing BUSINESS SOLUTIONS Variable costing Income statement Production volume (units) 300 workstations 320 workstations Sales volume (units) 300 workstations 320 workstations Sales revenue $1,200,000.00 $1,280,000.00 Less : Variable expenses Direct Material $213,000.00 $227,200.00 Direct Labour $96,000.00 $102,400.00 Overheads $15,000.00 $16,000.00 Selling expenses $13,500.00 $14,400.00 Total Variable Expenses $337,500.00 $360,000.00 Contribution Margin $862,500.00 $920,000.00 Less : Fixed Expenses Overheads $24,000.00 $24,000.00 Selling expenses $3,500.00 $3,500.00 Total Fixed Expenses $27,500.00 $27,500.00 Net Income (loss) $835,000.00 $892,500.00 Under variable costing , can a company increase its net income by increasing production? Yes

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