Question

Connelly Inc., a manufacturer of quality electric ice cream makers, has experienced a steady growth in sales over the past few years.
Because her business has grown, Jan De Janey, the president, believes she needs an aggressive advertising campaign next year to maintain the company's growth.

To prepare for the growth, the accountant prepared the following data for the current year:

Variable costs pet ice croam maker:
Direct labor $15.00
Direct materials 18.50
Variable overhead 7.50
Total variable costs $41.00
Fixed costs:
Manufacturing $95,500
Selling 55,500
Administrative 548,000
Total fixed costs $699,000
Selling price per unit $75
Expected sales (units) 41,000

If the costs and sales price remain the same, what is the projected operating profit for the coming year?

Answer 1

Answer:

The projected operating profit for next year will be $ 695000  

Explanation:

This question relates to Break even point.

The Operating profit under break even point formula is equal to Contribution less Fixed Cost.

Contribution per unit refers to difference between selling price per unit minus total variable cost per unit.

According to Given data

Selling Price per unit = $ 75 per unit

Expected Sales = 41000 units

Total Variable Cost = $ 41 per unit

Total Fixed Cost =

$ 699000

Operating Profit = Contribution - Fixed Cost ----- (a)

Contribution Per unit = Selling Price - Variable Cost

Contribution Per unit = $ 75 - $ 41 = $34

Total Contribution =  Contribution Per unit x Sales

Total Contribution =  $ 34 x 41000 = $ 1394000

Putting the value of Total contribution in equation (a)

Operating Profit = $ 1394000 - Fixed Cost

Operating profit = $ 1394000 - $ 699000 = $ 695000