Question

Blaster Corporation manufactures hiking boots. For the coming year, the company has budgeted the following costs for the production and sale of 30,000 pairs of boots.
Budgeted Costs Budgeted Costs per Pair Percentage of Costs Considered Variable
Direct materials $ 630,000 $ 21 100 %
Direct labor 300,000 10 100
Manufacturing overhead
(fixed and variable) 720,000 24 25
Selling and administrative
expenses 600,000 20 20
Totals $ 2,250,000 $ 75
Required:
a. Compute the sales price per unit that would result in a budgeted operating income of $900,000, assuming that the company produces and sells 30,000 pairs. (Hint: First compute the budgeted sales revenue needed to produce this operating income.) Assume that the company decides to sell the boots at a unit price of $121 per pair.
b-1. Compute the total fixed costs budgeted for the year.
b-2. Compute the variable cost per unit.
b-3. Compute the contribution margin per pair of boots.
b-4. Compute the number of pairs that must be produced and sold annually to break even at a sales price of $121 per pair.

Answer 1

Answer:

a. Sales volume = (Fixed costs + Target income) / Contribution margin per unit

     Fixed costs = ( Percentage of fixed Selling and Admin expenses) +  

      Percentage of fixed Manufacturing expenses

     = 600,000 * 80% + 720,000 * 75%

     = 480,000 + 540,000

     = $1,020,000

30,000 units = (1,020,000 + 900,000) / Contribution Margin per unit

Contribution margin per unit = 1,920,000/30,000

= $64

Sales per unit = Contribution margin per unit  + Variable cost per unit

       Variable Cost per unit = 21 + 10 + (24*25%) + (20 * 20%)

        = $41

Sales per unit = 64 + 41

= $105 per unit

b - 1. Fixed costs = ( Percentage of fixed Selling and Admin expenses) + Percentage of fixed Manufacturing expenses

= 600,000 * 80% + 720,000 * 75%

= 480,000 + 540,000

= $1,020,000

b - 2. Variable Cost per unit

= Direct materials + Direct Labor + variable percentage of Manufacturing overhead cost per unit + variable percentage of Selling and administrative per unit

= 21 + 10 + (24*25%) + (20 * 20%)

= $41

b - 3. Contribution margin = Selling price - Variable cost

= 121 - 41

= $80

b - 4. Breakeven Point = Fixed Cost / Contribution margin

= 1,020,000/80

= 12,750 units