The information I have: Total market for Microwave Ovens 5 million units Current
ID: 2698448 • Letter: T
Question
The information I have:
Total market for Microwave Ovens
5 million units
Current yearly sales of Zig brand
750,000 units
Direct factory labor
$13.20 per unit (VC)
Raw materials
Salesperson’s Commissions
$50 per unit (VC)
10% of Manufactures Selling Price (VC)
All factory and administrative overheads
$2,000,000 (FC)
Retail selling price
$300 per unit
Retailers margin
20%
Jobber's margin
20%
Wholesaler’s margin
15%
Sales travel expenses
$800,000 (FC)
Advertising
$3 million (FC)
Distribution channel is Manufacturer ® Wholesaler ® Jobber ® Retailer
Questions
Answers:
Wholesaler $______________
Jobber $______________
Retailer $ ______________
Answer: $/unit ______________
Answer: (A)_________units (B) $______________
Answer: _____________%
Answer: $ ______________
Answer: $_____________
Answer: _____________%
Total market for Microwave Ovens
5 million units
Current yearly sales of Zig brand
750,000 units
Direct factory labor
$13.20 per unit (VC)
Raw materials
Salesperson’s Commissions
$50 per unit (VC)
10% of Manufactures Selling Price (VC)
All factory and administrative overheads
$2,000,000 (FC)
Retail selling price
$300 per unit
Retailers margin
20%
Jobber's margin
20%
Wholesaler’s margin
15%
Sales travel expenses
$800,000 (FC)
Advertising
$3 million (FC)
Explanation / Answer
example........................ Product cost = 1,000, I want a 20% profit margin, thus to determine the selling price, I use: 1,000 x 1.2 = 1,200. Thus 1,200 is my selling price for this product. My friend, however, uses different approach, the way he does it is as follow : 1,000 / 0.8 = 1,250. But when I double check the results, by using profit / selling price to find profit margin, my answer above does not match my result. The formula is as follow: ( profit / selling price ) * 100% = profit margin. When I put in the numbers : ( 200/ 1,200) * 100% = 16.66%. ( 250/1,250)*100% = 20%.......................................................................................... example.................... Sales (10,000 units) - 1,000,000 Cost of Sales: Direct Materials......150,000 Direct Labor............175,000 Variable Overhead.125,000 Fixed Overhead......100,000 Gross Profit - 450,000 Selling General & Admin Variable...............100,000 Fixed.......... .........225,000 Operating Income - 125,000 Contribution margin per unit? 550,000/10000 = 55 Breakeven point in units? ...........................................Contribution margin IS revenue minus variable costs. VC = Direct Materials $150,000 + Direct Labor $175,000 + Variable Overhead $125,000 + Variable SG&A $100,000 = $550,000 So CM = $1,000,000 - $550,000 = $450,000 CM per unit = $450,000/10,000 i.e. $45 Breakeven point in units = Fixed costs/CM per unit = $325,000/$45 = 7,223 units.
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