Exercise 4-24 Basic Break-Even Calculations Suppose that Adams Company sells a product for S20. Unit costs are as

Question

Exercise 4-24 Basic Break-Even Calculations Suppose that Adams Company sells a product for S20. Unit costs are as follows: Direct materials Direct labor Variable factory overhead Variable selling and administrative expense $1.90 1.40 2.10 1.60 Total fixed factory overhead is S54,420 per year, and total fixed selling and administrative expense is 538,530. Required: I. Calculate the variable cost per unit and the contribution margin per unit. 2. Calculate the contribution margin ratio and the variable cost ratio. 3. Calculate the break-even units. 4. Prepare a contribution margin income statement at the break-even number of units.

Help In Homework · Accepted Answer

1) Computation of Variable Cost per Unit and Contribution Margin per Unit: Variable cost per unit = Direct material cost + Direct labor cost + Variable overhead cost + Variable selling expenses = 1.90 + 1.40 + 2.10 + 1.60 Variable cost per unit = $7.00 Contribution margin = Selling price - Variable cost = $20 - $7.00 Contribution Margin per unit = $13.00 2) Computation of Contribution Margin Ratio and Variable Cost Ratio: Contribution Margin Ratio = Contribution Margin per Unit/Sales Price per Unit = $13/$20 Contribution Margin Ratio = 65% Variable Cost Ratio = Variable Cost per Unit / Sales Price per Unit = $7/$20 Variable Cost Ratio = 35% 3) Computation of Break-even Point in Units: Break-even Point in Units = Total Fixed Costs/Contribution Margin per Unit Here, Total Fixed cost = Total Fixed Overhead + Total Fixed selling and administration expenses = $54,420+$38,530 Total Fixed Cost = $92,950 Break-even Point in Units = $92,950/$13 = 7,150 units 4) PFA

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Exercise 4-24 Basic Break-Even Calculations Suppose that Adams Company sells a product for S20

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