Question

Question 6

[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) Net Profit Formula:

Net Profit Formula= (Net Sales-Cost of Production)

b) CM Ratio (Contribution Margin Ratio) & Break Even Point in Units

CM Ratio: (Total Sales-Variable Cost) / Sales

Total Sales= $ 516 X 1000 = $ 516000.

Variable Cost= Accounting Staff Salaries + Sales Commissions

Hence Variable Cost will be: $ 33000 + $ (25 X 1000 Units) = $ 58000

Hence Contribution Margin Ratio will be = ( 516000 - 58000) / 516000 = 0.8875

Break Even Point in Unit: (Fixed Cost) / (Selling Price Per Unit - Variable Cost Per Unit)

Fixed Cost:

Plastic for Casing: $ 19000

Property Taxes on Factory= $ 7000

Drum Stands (1000 stands purchased)= $ 35000

Upper Management Salaries= $ 170000

Annual Flat Fee for Factory Maintenance Service: $ 16000

Wages for Assembly workers: $ 90000

Machienry depreciation= $ 42000

Rent Cost of Equipment for Sales Staff: $ 36000

Hence Fixed Cost= $ 415000

Selling Price Per unit: $ 516

Variable Cost= Accounting Staff Salaries + Sales Commissions

Total Variable Cost will be: $ 33000 + $ (25 X 1000 Units) = $ 58000

Variable Cost per unit: $ 58000 / 1000 = $ 58

Hence Break Even Point in Unit = ( 415000 ) / ( 516 - 58 ) = 906.11

c) Net Operating Income:

Formula:

Net Operating Income = Total Revenue - Cost of Goods Sold - Operating Expenses

Hence NOI: $ 516000 - $ 415000 - $ 58000 = $ 43000.

d) How Many units TrueBeat need to sell to maintain same operating income:

Answer: 1000 Units.