Question

Tempo Company's fixed budget (based on sales of 14,000 units) for the first quarter reveals the following.

	Fixed Budget
Sales (14,000 units × $205 per unit)						$	2,870,000
Cost of goods sold
Direct materials		$	322,000
Direct labor			602,000
Production supplies			392,000
Plant manager salary			122,000				1,438,000
Gross profit							1,432,000
Selling expenses
Sales commissions			112,000
Packaging			210,000
Advertising			100,000				422,000
Administrative expenses
Administrative salaries			172,000
Depreciation—office equip.			142,000
Insurance			112,000
Office rent			122,000				548,000
Income from operations						$	462,000

(1) Compute the total variable cost per unit.
(2) Compute the total fixed costs.
(3) Compute the income from operations for sales volume of 12,000 units.
(4) Compute the income from operations for sales volume of 16,000 units.

1. Compute the total variable cost per unit.

	Variable cost per unit

2. Compute the total fixed costs.

	Total fixed costs

3. Compute the income from operations for sales volume of 12,000 units.

	Income from operations at sales of 12,000 units

4. Compute the income from operations for sales volume of 16,000 units.

	Income from operations at sales of 16,000 units

Answer 1

Solution:

Particulars	variable amount per unit	Total fixed cost	12,000 units	14,000 units	16,000 units
Sales	205		2,460,000	2,870,000	3,280,000
Variable costs:
direct materials	23		276,000	322,000	368,000
Direct labor	43		516,000	602,000	688,000
Production supplies	28		336,000	392,000	448,000
Sales commissions	8		96,000	112,000	128,000
Packing	15		180,000	210,000	240,000
Total variable costs	117		1,404,000	1,638,000	1,872,000
Contribution margin	88		1,056,000	1,232,000	1,408,000
Fixed cost:
Plant manager salary		122,000	122,000	122,000	122,000
Advertising		100,000	100,000	100,000	100,000
Administrative salaries		172,000	172,000	172,000	172,000
Depreciation office equipment		142,000	142,000	142,000	142,000
Insurance		112,000	112,000	112,000	112,000
Office rent		122,000	122,000	122,000	122,000
total fixed cost		770,000	770,000	770,000	770,000
Income from operations			$286,000	$462,000	$638,000