The sale price will be 3.50 for a hot dog, potato chips and a drink. The project
ID: 2578906 • Letter: T
Question
The sale price will be 3.50 for a hot dog, potato chips and a drink. The projected cost per sale is 1.35. Condiments are projected to be $ .35 per sale. The hot dog cart will be leased for a 12 month period for $ 425 per month. Liability insurance will be $ 1,200 per year. The owner wants to earn $ 20,000 per year and assumes a tax rate of 20%. An annual profit is projected to be $ 10,000.
.
1 What are the total variable costs per unit?
2 What is the contribution margin ratio?
3 What are the total fixed costs?
4 What are the total expenses per the income statement?
5 How many units must be sold per year?
6 If the sales price changes to $ 4.00 and the owner salary changes to $ 15,000, how many units must be sold?
Explanation / Answer
1.
Variable cost is the amount of spending which is directly related to number of units. Increasing unit increases such cost, and vice versa.
Total variable cost = Cost per sale + Condiments per sale
= $1.35 + $0.35
= $1.7 per unit (Answer)
2.
Contribution per unit = Sale price – Total variable cost per unit
= $3.50 - $1.70
= $1.80
Contribution margin ratio = (Contribution per unit / Sale price) × 100
= ($1.80 / $3.50) × 100
= 51.43% (Answer)
3.
Fixed cost is the amount of spending which is not related to number of units; suppose rent of a factory building may not be increased or decreased by the change in factory production; therefore, rent is a fixed cost.
Total fixed cost = Lease expense + Insurance premium
= (12 × $425) + $1,200
= $5,100 + $1,200
= $6,300 (Answer)
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