Question

Listed here are the total costs associated with the production of 1,000 drum sets manufactured by TrueBeat. The drum sets sell for $553 each. Costs 1. Plastic for casing-$21,000 2. Wages of assembly workers-$82,000 3. Property taxes on factory-$7,000 4. Accounting staff salaries-$32,000 5. Drum stands (1,000 stands purchased) $40,000 6. Rent cost of equipment for sales staff-$36,000 7. Upper management salaries-$220,000 8. Annual flat fee for factory maintenance service-$14,000 9. Sales commissions $18 per unit 10. Machinery depreciation, straight-line-$47,000

Answer 1

Solution

	Costs	Variable	Fixed
1	Plastic for casing	$ 21,000
2	Wages of assembly workers	$                     82,000
3	Property taxes on factory		$ 7,000
4	Accounting staff salaries		$ 32,000
5	Drum stands	$ 40,000
6	Rent cost of equipment for sales staff		$ 36,000
7	Upper management salaries		$ 2,20,000
8	Annual flat fee paid for maintenance services		$           14,000
9	Sales commissions ($18 per unit sold)	$ 18,000
10	Machinery depreciation - straight line		$           47,000
	Total	161,000	356,000

Note - As production manager is anticipitaing inflation and other increase that will results in total variable cost to be incraesed by 20%

Total Variable Costs = 161000 +  (161000 * 20%) = $ 193,200

a) New Profit Formula will be :

  Sales of Drum sets (1000 * 553) $ 553,000

(-) Variable Costs $ 193,200

Contribution $ 359,800

(-) Fixed Costs $ 356,000

Profit $ 3,800

b) Contribution Margin Ratio & Break Even Point in units

- CM Ratio = Contribution margin/ Sales * 100

359,800/553,000 * 100 = 65.06 %

- Break Even Point = Fixed Cost / Contribution per unit

=   356,000 / 359.8* = 989.44 units

* Selling Price per unit $ 553

Variable cost per unit $ 193.2 (193,200 / 1000)

Contribution per unit $ 359.8

c)