Question

1. Marlene’s Manufacturing produces thingamajigs and has provided the following information: The average thingamajig has a sales price of $36; raw materials for the thingamajig are $6, and it takes 15 minutes to assemble one thingamajig. Production labor is paid $16 per hour. Operating expenses are as follows: salaries, $3,800 per week; insurance, $1,500 per quarter; rent, $4,200 per month and utilities, $1,000 per month.

1. What are Marlene’s fixed costs per month?

2. What are Marlene’s variable costs for each unit?

3. What is the contribution margin for each watchamallcallit sold?

4. What is Marlene’s break-even point in units?

5. If the goal is to make $18,000 profit per month, how many units will have to be sold?

Answer 1

a) What are Marlene’s fixed costs per month?

Answer: $20,775

Calculation:

As per the given details, Fixed Costs includes Salaries, Insurance, Rent & Utilities

Hence it is calculated as follows (per month):

$[(3,800*4)+(1,500/4)+4,200+1,000] = $20,775

b) What are Marlene’s variable costs for each unit?

Answer: $ 10

Calculation:

As per the given details, Variable Costs includes Raw materials & Production labor

Hence it is calculated as follows (per unit):

$[6+(16/4)] = $10

c) What is the contribution margin for each watchamallcallit sold?

Answer: 26

Calculation:

Contribution Margin per Unit = Selling Price per Unit - Variable Costs

36-10 = 26

What is Marlene’s break-even point in units?

Answer: 578 Units

Calculation:

Break-Even Point = Point where Total Sales equals Total Cost

Total Cost = $20,775+$10 = $20,785

To achieve Breaking Point = $20,785/$36 = 577.36 rounded to 578 units

d) If the goal is to make $18,000 profit per month, how many units will have to be sold?

Answer: 1078 units

Calculation:

To achieve Break-even, 578 units have to be sold.

Total Break-even Sales = 578*36 = $20,808

Adding required profit $18,000 = $20,808+$18,000 = $38,808

Total Units to be sold to achieve that profit = $38,808/$36 = 1078 units