Question

Question 4

[The following information applies to the questions displayed below.) Listed here are the total costs associated with the production of 1,000 drum sets manufactured by TrueBeat. The drum sets sell for $516 each. Costs 1. Plastic for casing-$19,000 2. Wages of assembly workers--$90,000 3. Property taxes on factory-$7,000 4. Accounting staff salaries-$33,000 5. Drum stands (1.000 stands purchased)-$35,000 6. Rent cost of equipment for sales staff-$36.000 7. Upper management salaries-$170,000 8. Annual flat fee for factory maintenance service--$16,000 9. Sales commissions-$25 per unit 10. Machinery depreciation, straight-line-$42,000

Answer 1

Answer

a) Profit formula as per variable costing:

Contribution margin = Total sales - Total Variable expenses

Profit = Contribution margin - Total fixed expenses

where,

Total Sales = Selling price per unit X Number of units produced and sold

b)

Calculation of variable cost per unit

Particular	Amount
Plastic for casing ($19,000/1000)	$19.00
Wages of assembly workers ($90,000/1000)	$90.00
Drum stands($35,000/1000)	$35.00
Sales commissions (is given)	$25.00
Total Variable cost per unit	$169.00

Calculation of Fixed cost

Particular	Amount
Property taxes on factory	$7,000.00
Accounting staff salaries	$33,000.00
Rent cost of equipment for sales staff	$36,000.00
Upper management salaries	$1,70,000.00
Annual flat fee for factory maintenance service	$16,000.00
Machinery depreciation, straight line	$42,000.00
Total Fixed Expenses	$3,04,000.00

Units produced/sold	(a) Sales Revenue (Units x $516)	(b) Variable Expenses(Units x $169)	(c) Fixed Expenses(as per above working)	Profit/NOI(a-b-c)
4000	$20,64,000	$6,76,000	$3,04,000	$10,84,000
5000	$25,80,000	$8,45,000	$3,04,000	$14,31,000
6000	$30,96,000	$10,14,000	$3,04,000	$17,78,000
7000	$36,12,000	$11,83,000	$3,04,000	$21,25,000

Calculation of break-even point.

Break-even point = Fixed expenses/contribution margin per unit

= $3,04,000/($516-$169)

= 876 units

Chart Title Value $40,00,000.00 $35,00,000.00 $30,00,000.00 $25,00,000.00 $20,00,000.00 $15,00,000.00 $10,00,000.00 $5,00,000.00 $0.00 Break-Even Point 500 1000 2000 3000 4000 5000 6000 7000 Units Sales Revenue Fixed Expense Total Expense