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151.
The following monthly data in contribution format are available for the Feta Company and
its only product, Product Gamma:
Total
Per Unit
Sales
$83,700
$279
Variable costs
32,700
109
Contribution margin
51,000
$170
Fixed costs
40,000
Operating profit
$11,000
The company produced and sold 300 units during the month and had no beginning or
ending inventories.
Required:
a. Without resorting to calculations, what is the total contribution margin at the break–
even point?
b. Management is contemplating the use of plastic gearing rather than metal gearing in
Product Gamma. This change would reduce variable costs by $18 per unit. The company’s
sales manager predicts that this would reduce the overall quality of the product and, thus,
would result in a decline in sales to a level of 250 units per month. Should this change be
made?
c. Assume that Feta Company is currently selling 300 units of Product Gamma per month.
Management wants to increase sales and feels this can be done by cutting the selling
price by $22 per unit and increasing the advertising budget by $20,000 per month.
Management believes that these actions will increase unit sales by 50 percent. Should
these changes be made?
d. Assume that Feta Company is currently selling 300 units of Product Gamma.
Management wants to automate a portion of the production process for Product Gamma.
The new equipment would reduce direct labor costs by $20 per unit but would result in a
monthly rental cost for the new robotic equipment of $10,000. Management believes that
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152.
Morgan Designs manufactures decorative iron railings. In preparing for next year’s
operations, management has developed the following estimates:
Total
Per Unit
Sales (20,000 units)
$1,000,000
$50.00
Direct materials
$200,000
$10.00
Direct labor (variable)
$50,000
$2.50
Manufacturing overhead:
Variable
$70,000
$3.50
Fixed
$80,000
$4.00
Selling & administrative:
Variable
$100,000
$5.00
Fixed
$30,000
$1.50
Required:
Compute the following items:
a. Unit contribution margin.
b. Contribution margin ratio.
c. Break-even in dollar sales.
d. Margin of safety percentage.
e. If the sales volume increases by 20%, with no change in total fixed costs, what will be
the change in operating profit?
f. If the per unit variable production costs increase by 15%, and fixed selling and
administrative costs increase by 12%, what will be the new break-even point in dollar
sales?
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153.
Maryland Company offers two products. At present, the following represents the usual
results of a month’s operations:
Product XX
Product ZZ
Per
Unit
Per
Unit
Combined
Sales
$120,000
$1.20
$80,000
$0.80
$200,000
Variable
costs
60,000
0.60
60,000
0.60
120,000
Contribution
margin
$60,000
$0.60
$20,000
$0.20
80,000
Fixed costs
50,000
Operating
profit
$30,000
154.
Data concerning Fowler Corporation’s single product appear below:
Per Unit
Percent of Sales
Selling price
$210
100%
Variable costs
126
60%
Contribution margin
$84
40%
Fixed costs are $444,000 per month. The company is currently selling 7,000 units per
month.
Required:
Management is considering using a new component that would increase the unit variable
cost by $2. Since the new component would improve the company’s product, the
marketing manager predicts that monthly sales would increase by 200 units. What should
be the overall effect on the company’s monthly operating profit of this change if fixed
costs are unaffected?
unit + $2 per unit)
per unit – $128 per unit)
New total contribution margin:
7,200 units × $82 per unit
155.
156.
157.
158.
159.
160.
161.