Question

Ferkil Corporation manufacturers a single product that has a selling price of $20.00 per unit. Fixed expenses total $63,000 per year, and the company must sell 9,000 units to break even. If the company has a target profit of $17,500, sales in units must be:
Multiple Choice
•   10,682 units
•   9,875 units
•   11,500 units
•   12,150 units

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Data concerning Bedwell Enterprises Corporation's single product appear below:

         
Selling price per unit   $   180.00
Variable expenses per unit   $   93.50
Fixed expense per month   $   435,690


The unit sales to attain the company's monthly target profit of $23,000 is closest to: (Do not round intermediate calculations.)

Garrison 16e Rechecks 2018-06-19
Multiple Choice
•   5,037
•   2,548
•   4,906
•   5,303

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Aaron Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

         
Selling price   $   95
         
Units in beginning inventory      0
Units produced      3,400
Units sold      3,030
Units in ending inventory      370


         
Variable costs per unit:        
Direct materials   $   20
Direct labor   $   34
Variable manufacturing overhead   $   6
Variable selling and administrative expense   $   4
Fixed costs:        
Fixed manufacturing overhead   $   64,700
Fixed selling and administrative expense   $   2,800


The total contribution margin for the month under variable costing is:
Multiple Choice
•   $26,430
•   $93,930
•   $29,230
•   $106,050
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Gabuat Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

         
Selling price   $   135
         
Units in beginning inventory      0
Units produced      3,200
Units sold      2,660
Units in ending inventory      540


         
Variable costs per unit:        
Direct materials   $   53
Direct labor   $   23
Variable manufacturing overhead   $   7
Variable selling and administrative expense   $   8
Fixed costs:        
Fixed manufacturing overhead   $   41,600
Fixed selling and administrative expense   $   26,600


The total gross margin for the month under the absorption costing approach is:
Multiple Choice
•   $77,140
•   $103,740
•   $82,460
•   $159,600

Answer 1

Solution 1:

Contribution margin per unit = Fixed cost / breakeven sales = $63,000 / 9000 = $7 per unit

Nos of sales units to earn target profit = (Fixed cost + Target profit) / contribution margin per unit

= ($63,000 + $17,500) / $7 = 11500 units

Hence 3rd option is correct.

Solution 2:

Contribution margin per unit = Selling price per unit - Variable cost per unit = $180 - $93.50 = $86.50 per unit

Nos of sales units to earn target profit = (Fixed cost + Target profit) / contribution margin per unit

= ($435,690 + $23,000) / $86.50 = 5303 units

Hence last option is correct.

Solution 3:

Total contribution margin = Sales units * Contribution margin per unit

Contribution margin per unit = Selling price - Variable cost per unit

= $95 - ($20 + $34 + $6 + $4) = $31 per unit

Total contribution margin = 3030*$31 = $93,930

Hence 2nd option is correct.

Solution 4:

Unit Product cost under absorption cost = Direct material + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead per unit

= $53 + $23 + $7 + ($41,600 / 3200) = $96 per unit

Gross Profit = Nos of units sold * (Selling price - unit cost)

= 2660 * ($135 - $96) = $103,740

Hence 2nd option is correct.