4. (15 pts) Illinois Company has budgeted the following costs for the production

Question

4. (15 pts) Illinois Company has budgeted the following costs for the production of its only product: Direct Materials Direct Labor Variable indirect production costs Fixed indirect production costs Variable selling and administrative costs 7,500 Fixed selling and administrative costs Total Costs inois Company has a target profit of $40,000. The company will produce 1,000 units. The $35,000 25,000 30,000 15,000 12,500 $125,000 market price is $160 per unit. What is the target cost per unit? PLEASE TURN OVER

Explanation / Answer

Production units 1000 Fixed costs Fixed selling and administrative costs A 12500 Fixed indirect production costs B 15000 Total Fixed costs   (A + B) C 27500 Target profit D 40000 Target contribution (Note 2)       (C + D) E 67500 Target contribution per unit   (E / production) F 67.50 Selling price per unit G 160.00 Target variable cost       (Note 1)              (G - F) 92.50 Less:Variable selling and admn. Cost per unit 7.50       (7,500 / 1,000) Target cost of production per unit 85.00 The equations are: 1. Selling price - Variable costs = Contribution 2. Contribution = Profit + Fixed costs

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