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The following information for Jennifer Framing Supply is given for March: Sales Fixed manufacturing costs Fixed marketing and administrative costs Total fixed costs Total variable costs Unit price
The following information for Jennifer Framing Supply is given for March:
Sales
Fixed manufacturing costs
Fixed marketing and administrative costs
Total fixed costs
Total variable costs
Unit price.
Unit variable manufacturing cost
Unit variable marketing cost
$500,000
45,000
30,000
75,000
250,000
100
45
5
Compute the following:
a. Monthly operating profit when sales total $500,000
b. Break-even number in units.
c. Number of units sold that would produce an operating profit of $150,000.
d. Sales dollars required to earn an operating profit of $25,000.
e. Number of units sold in March.
f. Number of units sold that would produce an operating profit of 25 percent of sales dollars.
Expert Solution
Answer:
Contribution margin ratio = (Sales - Total variable cost) / Sales
= ($500,000 - $250,000) / $500,000
= $250,000 / $500,000
= 50%
a.
| Sales | $500,000 |
| Less: Variable costs | $250,000 |
| Contribution margin | $250,000 |
| Less: Fixed costs | $75,000 |
| Operating profit | $175,000 |
b.
Total variable cost per unit = Unit variable manufacturing costs + Unit variable marketing costs
= $45 + $5
= $50
Break even number in units = Fixed costs / (Unit price - Total variable cost per unit)
= $75,000 / ($100 - $50)
= $75,000 / $50
= 1,500 units
c.
Number of units to achieve target operating income of $150,000 = (Total Fixed costs + Target operating profit) / (Unit price - Total variable cost per unit)
= ($75,000 + $150,000) / ($100 - $50)
= $225,000 / $50
= 4,500 units
d.
Sales dollars to achieve target operating income of $25,000 = (Total Fixed costs + Target operating profit) / Contribution margin ratio
= ($75,000 + $25,000) / 50%
= $100,000 / 50%
= $200,000
e.
Number of units sold in March = Sales / Unit price
= $500,000 / $100
= 5,000 units
f.
Operating profit = 25% * Sales
= 25% * $500,000
= $125,000
Number of units to achieve target operating income of $125,000 = (Total Fixed costs + Target operating profit) / (Unit price - Total variable cost per unit)
= ($75,000 + $125,000) / ($100 - $50)
= $200,000 / $50
= 4,000 units
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