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Tempo Company's fixed budget (based on sales of 10,000 units) for the first quarter reveals the following
Tempo Company's fixed budget (based on sales of 10,000 units) for the first quarter reveals the following. Fixed Budget $2,180,000 $250,000 440,000 270,000 50,000 1,010,000 1,170,000 Sales (10,000 units x $218 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 70,000 160,000 100,000 330,000 100,000 70,000 40,000 50,000 260,000 580,000 $ (1) Compute the total variable cost per unit. (2) Compute the total fixed costs. (3) Compute the income from operations for sales volume of 8,000 units. (4) Compute the income from operations for sales volume of 12,000 units.
Expert Solution
Sol:- (1) Statement showing the total variable cost per unit:
| Particulars | 10,000 units | Per unit ($) |
| Direct Materials | 250,000 | 25 |
| Direct Labour | 440,000 | 44 |
| Production Supplies | 270,000 | 27 |
| Sales Commissions | 70,000 | 7 |
| Packaging | 160,000 | 16 |
| Total Variable cost per unit | 1,190,000 | 119 |
Therefore total variable cost per unit is $119.
Sol:- (2) Statement showing the total fixed costs:
| Particulars | Amount ($) |
| Plant manager salary | 50,000 |
| Advertising | 100,000 |
| Administrative salaries | 100,000 |
| Depreciation-office equip. | 70,000 |
| Insurance | 40,000 |
| Office rent | 50,000 |
| Total Fixed cost | 410,000 |
Sol:- (3) Statement showing the income from Operations for sales volume of 8,000 units:
| Particulars | Amt. ($) | Amt. ($) |
| Sales (8,000 units * $218 per unit) (A) | 1,744,000 | |
| Cost of goods sold (B) | ||
| Direct materials (8,000 units * $25 per unit) | 200,000 | |
| Direct labour (8,000 units * $44 per unit) | 352,000 | |
| Production supplies (8,000 units * $27 per unit) | 216,000 | |
| Plant manager salary | 50,000 | 818,000 |
| Gross Profit (C) = (A) - (B) | 926,000 | |
| Selling Expenses (D) | ||
| Sales comm. (8,000 units * $7 per unit) | 56,000 | |
| Packaging (8,000 units * $16 per unit) | 128,000 | |
| Advertising | 100,000 | 284,000 |
| Administrative Expenses (E) | ||
| Admin. salaries | 100,000 | |
| Depreciation-office equip. | 70,000 | |
| Insurance | 40,000 | |
| Office rent | 50,000 | 260,000 |
| Income from operations (F) = (C) - (D + E) | 382,000 |
Sol:- (4) Statement showing the income from operation for sales volume of 12,000 units:
| Particulars | Amt. ($) | Amt. ($) |
| Sales (12,000 units * $218 per unit) (A) | 2,616,000 | |
| Cost of goods sold (B) | ||
| Direct materials (12,000 units * $25 per unit) | 300,000 | |
| Direct labour (12,000 units * $44 per unit) | 528,000 | |
| Production supplies (12,000 units * $27 per unit) | 324,000 | |
| Plant manager salary | 50,000 | 1,202,000 |
| Gross Profit (C) = (A) - (B) | 1,414,000 | |
| Selling Expenses (D) | ||
| Sales comm. (12,000 units * $7 per unit) | 84,000 | |
| Packaging (12,000 units * $16 per unit) | 192,000 | |
| Advertising | 100,000 | 376,000 |
| Administrative Expenses (E) | ||
| Admin. salaries | 100,000 | |
| Depreciation-office equip. | 70,000 | |
| Insurance | 40,000 | |
| Office rent | 50,000 | 260,000 |
| Income from operations (F) = (C) - (D + E) | 778,000 |
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