Question

30. You have been provided with Manufacturing Company: e following information regarding the ALG ost per unit $ 25 Sales price Variable manufacturing cost per Variable marketing cost per unit Fixed manufacturing costs Fixed administrative costs 3 180,000 40,000 mation is based on forecasted sales of 25.000 units. This information is based on foreca Required: (15 points) What are the expected operating profits for the upcoming year? (b) What is the break-even point in units? (c) What is the break-even point in dollars 2 If $80.000 of operating prom is desired, how many units must be sold? (e) How much in sales dic u red to generate an operating profit of $75,000? 31. For each of the following costs incurred in a manufacturing company, indicate whether the costs are (a) fixed or variable and (b) product costs or period costs by placing an 'X' in the appropriate square. (6 points) Cost Item Variable Fixed Period Product Leather used to manufacture a soccer ball Depreciation of factory machinery (straight-line) Accounting salaries

Answer 1

Answer-30-a)- The expected operating profits for the upcoming year =$30000.

Explanation-

ALG Manufacturing Company
Contribution margin income statement
Particulars		Amount
		$
Sales	25000 units*$25 per unit	625000
Less:- Total Variable cost	($12 per unit+$3 per unit)*25000 units	375000
Contribution		250000
Less:- Fixed costs	($180000+$40000)	220000
Net operating income		30000

b)- Break even points in units =22000 units.

Explanation- Break even points in units = Total fixed costs/Contribution margin per unit

= ($180000+$40000)/($25 per unit-$12 per unit-$3 per unit)

= $220000/$10 per unit

= 22000 units

c)- Break even points in dollars =$550000.

Explanation- Break even points in dollars= Break even points in units*Selling price per unit

= 22000 units*$25 per unit

= $550000

d)- Units must be sold to earn desired profit =30000 units.

Explanation- Units must be sold to earn desired profit =(Target profit+ Total Fixed costs)/ Contribution margin per unit

= ($80000+$220000)/$10 per unit

= 30000 units

e)- Sales dollars to be sold to earn desired profit of $75000 =$737500.

Explanation-Sales dollars be sold to earn desired profit =(Target profit+ Total Fixed costs)/ Contribution margin ratio

= ($75000+$220000)/40%

= $737500

Where- Contribution margin ratio = (Contribution margin per unit/Selling price per unit)*100

= ($10 per unit/$25 per unit)*100

= 40%

31)-

Cost Item	Fixed	Variable	Product	Period
Leather used to manufactuer a soccer ball		X	X
Depreciation of factory machinery (straight-line)	X		X
Accounting salaries	X			X