Question

Gotcha Covered Manufactures and sells leather cases for cell phones. Each Case sells for $80. Variable Manufacturing cost are $30 per case. We pay a sales commission of 10% of the selling price to our salespeople. Fixed manufacturing costs are $200,000 and fixed operating costs are $35,000.

A. Calculate the Following Amounts:

i. V (variable cost per unit) and VC% (Variable cost percentage)

ii. CM ( Contribution margin per unit) and CM% ( Contribution Margin Percentage.

IV. Quantity

V. Target quantity if we want to generate Operating Income= $100,000

Answer 1

All working forms part of the answer

Requirement (i)

Variable Cost per unit:
Variable Manufacturing Cost	$                   30.00
Sales Commission $ 80 x 10%	$                     8.00
Total Variable Cost per unit	$                   38.00

A	Total Variable Cost per unit	$                   38.00
B	Sale price per unit	$                   80.00
C = A/B	Variable Cost percentage	47.50%

--Requirement (ii)

A	Sale price per unit	$                   80.00
B	Total Variable Cost per unit	$                   38.00
C = A - B	Contribution margin per unit	$                   42.00

A	Contribution margin per unit	$                   42.00
B	Sale price per unit	$                   80.00
C = A/B	CM %	52.50%

--Requirement (iv)

	Fixed Cost:
	Fixed manufacturing Cost	$        200,000.00
	Fixed operating cost	$          35,000.00
A	Total Fixed Costs	$        235,000.00
B	Contribution margin per unit	$                   42.00
C = A/B	Quantity [for Break Even]	5,595

--Requirement (v)

A	Total Fixed Costs	$        235,000.00
B	Target Operating Income	$        100,000.00
C = A+B	Total Contribution margin required	$        335,000.00
D	Contribution margin per unit	$                   42.00
E = C/D	Target Quantity	7,976