Question

Tempo Company's fixed budget (based on sales of 14,000 units) for the first quarter reveals the following. Fixed Budget $2,926,000 $350,000 588,000 378,000 150,000 1,466,000 1,460,000 Sales (14,000 units x $209 per unit) Cost of goods sold Direct materials Direct labor Production supplies Plant manager salary Gross profit Selling expenses Sales commissions Packaging Advertising Administrative expenses Administrative salaries Depreciation-office equip. Insurance Office rent Income from operations 112,000 196,000 100,000 408,000 200,000 170,000 140,000 150,000 660,000 $ 392,000 (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

Answer 1

Note 1: Sales commission is a variable cost as the commision depends on the sales higher the sales higher will be the commssion and vice versa. therefore it fluctuates in total but is constant per unit.

Note 2: Similar to sales commission packaging as well is a variable cost.

whereas Plant managers salary is a fixed cost as if sales are there or not there salary of plant manager will be given. similarly advertising admin salaries depreciation insurance and office rent are such expenses which will occur irrespective of the sales hence will be same for any quantity/ units of sales.

From the image below we can conclude that :

1) the total Variable cost per unit is $116 for all the units i.e 12000,14000 and 16000

as, variable cost has a tendency and nature to be fixed or constant at per unit and vary at the total amount.

2) The Total Fixed costs are $ 910,000 for all the units i.e 12000, 14000 and 16000.

as, fixed cost is that cost which will occur no matter what sales you have and it has a tendency or nature to remain constant inthe total amount and vary in Per unit.

3) income from operations is calculated as :

sales - variable costs = contribution

contribution - fixed costs = income from operations from the image below you can see that income from operations for sales

volume 12000 units is $206,000

4)similarly, income from operations for sales volume 16000 units is $578,000

Dato: Particulars In the books of Tempo Company for the peñod ... First Quarter int Dor For ror 14000 units 12000 units 16000 units fou. Total pou Total perunit Total 209 2,926.000. 209 2508.000 209_334 4000 - 1 Sales 2) variable costſ: cost of goods sold. - Direct Material - Direct Labour - Production supplies - Sales Commission 25 42 clion supplies | 350,000 25 300, ooo 25 400,000 588000 42 50 4000 42 672 000 3 78.000 27 324,000 27 432,000 1/20008 9600o 8 128,000 196,000 14 168,090 14 224000 27 8 19 Packaging 116 93 1,624,000 116 1392000 116. 1856000 1302000. 93. 1116.000 93 1488,000 150,000 Total variable.coste (3) Contribution. (Sales-UC) 4) Fened costs: - Plant manages salary • Advertising Admin salaries - Deon on Office Eque - Insurance - Office Rent 100,000 200 000 170,000 140.000 150,000 150000 Looooo 2000oo 170000 140,000 150000 150oos 1ooooo 200 000 1 170000 140,000 150000 910000 910000 910000 Total fined Costs 39 2000 578000 206090 Lucome from Operations Contribution - FC)
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