Question

FunToys is introducing a new game. The expected costs for this game are as follows:

Variable Manufacturing Expenses	$18 per unit
Fixed Manufacturing Expenses	$10,000 per year
Variable Selling and Admin Expenses	$5 per unit
Fixed selling & administrative expenses	$5,000 per year

a) The expected selling price is

b) The breakeven point in unit is

c) The number of units which must be sold to earn $30,000 profit is

d) Prepare a Contribution Margin Income Statement assuming that FunToys sets the price for the new game at $45 and that they sell 6,000 units

Answer 1

Ans:

1.

Variable cost per unit : $18 + $5 = $23

Fixed Costs : $10,000 + $5,000 = $15,000

Expected selling price should be greater than $23 per Unit.

2.

Let Selling price is $25 each unit

Break even in Units = Fixed cost / Contribution per unit

Fixed cost = $15,000

Contribution per unit = Sales price - variable cost

= $25 - $23 = $2 per unit

Break Even sales = $15,000 / $2 = 7,500 Units

3.

Required profit = $30,000

So units to be sold = (Required profit + Fixed cost ) / Contribution per unit

= ($30,000 + $15,000) / $2 = 22,500 Units

4.

Income Statement :

Sales 6,000 Units @ $45 Each	$270,000
Variable costs 6,000 Units @ $23 per Unit	($138,000)
Contribution Margin	$132,000
Fixed costs:
Manufacturing costs	($10,000)
Selling and administration costs	($5,000)
Profit	$117,000

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