Question

Sales (16,000 units × $211 per unit) $ 3,376,000 Cost of goods sold Direct materials $ 400,000 Direct labor 688,000 Production supplies 448,000 Plant manager salary 200,000 1,736,000 Gross profit 1,640,000 Selling expenses Sales commissions 128,000 Packaging 256,000 Advertising 100,000 484,000 Administrative expenses Administrative salaries 250,000 Depreciation—office equip. 220,000 Insurance 190,000 Office rent 200,000 860,000 Income from operations $ 296,000 (1) Compute the total variable cost per unit. (2) Compute the total fixed costs. (3) Compute the income from operations for sales volume of 14,000 units. (4) Compute the income from operations for sales volume of 18,000 units.

Answer 1

	Flexbile Budgets
	Particulars	16,000 Units
			Amount ($)
	Sales                                  [A]	[16000 Units x $211]	$3,376,000
	Less: Cost of Goods Sold :-
	Direct Materials		$400,000
	Direct Labour		$688,000
	Production Supplies		$448,000
	Plant Manager Salary		$200,000
	Total Cost of Goods Sold   [B]		$1,736,000
	Gross Profit              C = [A-B]		$1,640,000
	Less: Selling Expenses:		($484,000)
	Sales Commissions	$128,000
	Packging	$256,000
	Advertising	$100,000
	Less: Adminstrative Expenses		($860,000)
	Adminstrative Salaries	$250,000
	Depreciation-Office Equipment	$220,000
	Insurance	$190,000
	Office Rent	$200,000
	Income From Operation-          [C]		$296,000
1)	Computation of Total Variable Cost Per Unit
		Variable Cost p.u.
	Variable Costs:-		Amount ($)
	Direct Materials	[$4,00,000/16,000 Units]	$25
	Direct Labour	[$6,88,000/16,000 Units]	$43
	Production Supplies	[$4,48,000/16,000 Units]	$28
	Sales Commissions	[$1,28,000/16,000 Units]	$8
	Total Variable Costs:-      [B]	[$16,64,000/16,000 Units]	$104
2)	Computation of Total Fixed Cost
	Fixed Costs:-	Amount ($)
	Plant Manager Salary	$200,000
	Packging	$256,000
	Advertising	$100,000
	Adminstrative Salaries	$250,000
	Depreciation-Office Equipment	$220,000
	Insurance	$190,000
	Office Rent	$200,000
	Total Fixed Costs	$1,416,000
3)	Flexbile Budgets
	Particulars	14,000 Units
			Amount ($)
	Sales                                  [A]	[14,000 Units x $211]	$2,954,000
	Less: Cost of Goods Sold :-
	Direct Materials	$25	$350,000
	Direct Labour	$43	$602,000
	Production Supplies	$28	$392,000
	Plant Manager Salary		$200,000
	Total Cost of Goods Sold   [B]		$1,544,000
	Gross Profit              C = [A-B]		$1,410,000
	Less: Selling Expenses:
	Sales Commissions	$8	($112,000)
	Packging		($256,000)
	Advertising		($100,000)
	Less: Adminstrative Expenses
	Adminstrative Salaries		($250,000)
	Depreciation-Office Equipment		($220,000)
	Insurance		($190,000)
	Office Rent		($200,000)
	Income From Operation-          [C]		$82,000
4}	Flexbile Budgets
	Particulars	18,000 Units
			Amount ($)
	Sales                                  [A]	[18,000 Units x $211]	$3,798,000
	Less: Cost of Goods Sold :-
	Direct Materials	$25	$450,000
	Direct Labour	$43	$774,000
	Production Supplies	$28	$504,000
	Plant Manager Salary		$200,000
	Total Cost of Goods Sold   [B]		$1,928,000
	Gross Profit              C = [A-B]		$1,870,000
	Less: Selling Expenses:
	Sales Commissions	$8	($144,000)
	Packging		($256,000)
	Advertising		($100,000)
	Less: Adminstrative Expenses
	Adminstrative Salaries		($250,000)
	Depreciation-Office Equipment		($220,000)
	Insurance		($190,000)
	Office Rent		($200,000)
	Income From Operation-          [C]		$510,000