Question

1. There is nothing more American than the hotdog. In an effort to pay for your books you have decided to set up a hotdog stand one day per week in the University XXX quad. All of the costs involved are listed below. All of these costs assume that your parents have graciously given you a grill to use.

Item	Cost	Variable or Fixed Cost	Direct Materials	Manufacturing Overhead
Hotdog per unit	$1.00
Hotdog roll per unit	$.50
Hotdog tray per unit	$.05
Condiments per unit	$.20
Propane gas (for the year)	$110
Tongs	$15
Rent paid to LaSalle	$1,000

Required

1. From the above list of 7 types of costs, a. list out here which are variable costs, and b. which are fixed costs.

2. From the above list of 7 types of costs, a. list out here which costs are direct materials, and b. which are overhead.

3. Your sophisticated market research tells you that you should charge $4.00 for a hotdog.  If your sales price is $4.00 per hotdog, what is your contribution margin per unit?

4. How many hotdogs do you need to sell to breakeven?

5. How many hot dogs do you need to sell to reach your target profit of $1,575?

6. If you sold 100 more hotdogs than the number needed to breakeven, then what would your margin of safety in sales $ be?

Answer 1

1)	Particulars			Nature of Cost
	Hotdog per unit			Variable
	Hotdog roll per unit			Variable
	Hotdog tray per unit			Variable
	Condiments per unit			Variable
	Propane gas (for the year)			Fixed
	Tongs			Fixed
	Rent paid to LaSalle			Fixed

2)	Particulars			Type of cost
	Hotdog per unit			Direct Material
	Hotdog roll per unit			Direct Material
	Hotdog tray per unit			Direct Material
	Condiments per unit			Direct Material
	Propane gas (for the year)			Manufacturing OH
	Tongs			Manufacturing OH
	Rent paid to LaSalle			Manufacturing OH

3)	Particulars				Amount
	Sales price per unit				$        4.00
Less:	Variable Costs
	Hotdog per unit			$      1.00
	Hotdog roll per unit			$      0.50
	Hotdog tray per unit			$      0.05
	Condiments per unit			$      0.20	$        1.75
	Contribution Margin per unit				$        2.25

4)	Break even sales (in units)			=	Fixed Cost / Contribution Margin p.u
				=	($ 110 + $ 15 + $ 1000) / $ 2.25
				=	500	hotdogs
5)	No. of hotdogs			=	(Fixed Cost + Target Profit) / Cont. Margin p.u
				=	($ 110 + $ 15 + $ 1000 + $ 1575) / $ 2.25
				=	1200	hotdogs
6)	Margin of safety			=	Actual Sales - Break Even Sales
				=	(600 - 500) x $ 4
				=	$    400.00