Question

Tempo Company's fixed budget (based on sales of 10,000 units) for the first quarter reveals the following. Fixed Budget Sales (10,000 units × $205 per unit) $ 2,050,000 Cost of goods sold Direct materials $ 240,000 Direct labor 440,000 Production supplies 270,000 Plant manager salary 40,000 990,000 Gross profit 1,060,000 Selling expenses Sales commissions 80,000 Packaging 150,000 Advertising 100,000 330,000 Administrative expenses Administrative salaries 90,000 Depreciation—office equip. 60,000 Insurance 30,000 Office rent 40,000 220,000 Income from operations $ 510,000

(1) Compute the total variable cost per unit.

(2) Compute the total fixed costs.

(3) Compute the income from operations for sales volume of 8,000 units.

(4) Compute the income from operations for sales volume of 12,000 units.

Answer 1

(1) Variable cost per unit
= Variable cost / Units sold = $118
Particulars	Amount - Variable cost	Units sold	Variable cost per unit
Direct materials	$2,40,000	10,000	$24
Direct labor	$4,40,000	10,000	$44
Production supplies	$2,70,000	10,000	$27
Sales commission	$80,000	10,000	$8
Packaging	$1,50,000	10,000	$15
		Total	$118
(2) Total fixed costs
Particulars	Amount
Plant manager salary	$40,000
Advertising	$1,00,000
Administrative salaries	$90,000
Depreciation - Office equipment	$60,000
Insurance	$30,000
Office rent	$40,000
Total fixed costs	$3,60,000
(3) Income from operations for sales volume of 8,000 units
Particulars	Amount
Sales (8,000 units @ $205 per unit)	$16,40,000
Less: Variable cost (8,000 units @ $118 per unit)	$9,44,000
Contribution margin	$6,96,000
Less: Fixed cost	$3,60,000
Income from operations	$3,36,000
(4) Income from operations for sales volume of 12,000 units
Particulars	Amount
Sales (12,000 units @ $205 per unit)	$24,60,000
Less: Variable cost (12,000 units @ $118 per unit)	$14,16,000
Contribution margin	$10,44,000
Less: Fixed cost	$3,60,000
Income from operations	$6,84,000