Question

a company has a $400,000 of fixed selling cost. $100,000 of fixed administrative costs and 300000. of fixed overhead. Their direct material costs are $20/unit. Labor costs are $10/hour and it takes 30 minutes to make on unit of product. Their selling commisssion are 10% of the selling price. the selling price is $80/ unit. 1-what is the dollar amount of total fixed costs? 2-What are the total variable costs PER UNIT? 3- Whats the contribution margin per unit? 4-Whats the contribution margin as a %? 5- whats the breakeven point in units? round 6-whats the amount of DOLLAR sales need to have a $50,000 before tax net income? round nearest dollar 7-Assume that ANOTHER company with different costs had a sales of $400,000; and operating NI of $30,000; and total variable costs of $300,000. Fixed costs = $70,000 . whats the operating leverage?

Answer 1

Computation of dollar value of fixed costs:
Particulars	$
Fixed selling costs	400000
Fixed Administrative costs	100000
Fixed Overheads	300000
Dollar Value of Fixed costs	800000
Computation of total variable cost per unit
Direct Material cost per unit	20
Direct Labor cost per unit	5
Selling commission	8
Total Variable cost per unit	33
Computation of Contribution margin per unit
Selling price per unit	80
Total Variable cost per unit	33
Contribution Margin per Unit (80-33)	47
Computation of Contribution margin %
Contribution Margin per Unit (80-33)	47
Selling price per unit	80
Contribution Margin % [(47/80)*100]	58.75%
Computatiion of Break even point in units
Dollar Value of Fixed costs	800000
Contribution Margin per Unit (80-33)	47
Break even point in units (800000/47)	17021
Computation of dollar sales required to
Net Income before Tax	50000
Fixed cost	800000
Contribution	850000
Contribution Margin % [(47/80)*100]	0.5875
Dollar sales required to have 50000 before tax net income (850000/0.5875)	1446809
Computation of Operating Leverage
Sales	400000
Less: Variable Costs	300000
Contribution Margin	100000
Less: Fixed Costs	70000
Operating Net Income	30000
Operating Leverage (100000/30000)	3.33