Question

Ocean City Kite Company manufactures & sells kites for $6.50 each. The variable cost per kite is $3.50 with the current annual sales volume of 55,000 kites. This volume is currently Ocean City Kite's breaking even point. Use this information to determine the dollar amount of Ocean City Kite Company's fixed costs. (Round dollar value to the nearest whole dollar & enter as whole dollars only.)

Ocean City Kite Company sells kites for $8.00 per kite. In FY 2019, total fixed costs are expected to be $190,000 and variable costs are estimated at $3.00 a unit. Ocean City Kite Company wants to have a FY 2019 operating income of $55,000. Use this information to determine the number of units of kites that Ocean City Kite Company must sell in FY 2019 to meet this goal. (Round your answer to a whole number)

The following totals are used to create a CVP Income Statement for Frederick Company for FY2018:

Frederick Company
Selected Financial Figures
For the Year Ended 12/31/18
Sales (100 units)		$10,000
Variable Costs:
Direct Labor	$1,650
Direct Materials	1,700
Factory Overhead (variable)	2,000
Selling Expenses (variable)	600
Administrative Expenses (variable)	500
Fixed Costs:
Factory Overhead (fixed)	$950
Selling Expenses (fixed)	1,000
Administrative Expenses (fixed)	1,000

Frederick Company utilizes a JIT production system and there are no Raw Materials, Work-in-Process or Finished Goods inventories. Use this information to determine FY 2018 Contribution Margin Percentage. Enter percentage to one decimal place. (example enter 35.5% as 35.5)

The following totals are used to create a CVP Income Statement for Frederick Company for FY2018:

Frederick Company
Selected Financial Figures
For the Year Ended 12/31/18
Sales (100 units)		$10,000
Variable Costs:
Direct Labor	$1,100
Direct Materials	1,900
Factory Overhead (variable)	2,000
Selling Expenses (variable)	600
Administrative Expenses (variable)	500
Fixed Costs:
Factory Overhead (fixed)	$950
Selling Expenses (fixed)	1,000
Administrative Expenses (fixed)	1,000

Frederick Company utilizes a JIT production system and there are no Raw Materials, Work-in-Process or Finished Goods inventories. Use this information to determine the FY 2016 breakeven point in units. Round and enter as a whole number.

Answer 1

As questions number is not mentioned in this problem for this, I have number the questions in sequences.

Question 1:

Given,

Sales price per kite = $6.50

Variable cost per kite = $3.50

Sales volume = 55,0000 units

Required: - Total fixed cost

We know that, in breakeven point the total contribution margin is equal to the total fixed cost. As this sales volume (55,000 units) is company’s breakeven point therefore at contribution margin at this sales volume is company’s total fixed cost.

Total contribution margin is calculated by subtracting total variable cost from total sales.

Total contribution margin = (Units sold × Sales price per unit) – (Units sold × Variable cost per unit)

= (55,000 units × $6.50) – (55,000 units × $3.50)

= $357,500 – $192,500

= $165,000 (answer)

Alternative method:

Total contribution margin can also be calculated by multiplying contribution margin per unit with units sold.

Contribution margin per unit = Sales price per unit – Variable cost per unit = $6.50 – $3.50 = $3

Now, total contribution margin per unit = Units sold × Contribution margin per unit

= 55,000 units × $3

= $165,000 (answer)

Question 2:

Given,

Sales price per kite = $8.00

Total expected fixed cost = $190,000

Variable cost per unit = $3.00

Desired operating income = $55,000

Required: - Total sales in units.

Desired sales in units = (Desired operating income + Total expected fixed cost) / Contribution margin per unit

= ($55,000 + $190,000) / $5

= $245,000 / $5

= 49,000 units (answer)

Note: Contribution margin per unit = Sales price per unit – Variable cost per unit = $8.00 – $3.00 = $5.00

Question 3:

Required: - Contribution margin percentage.

Contribution margin percentage = (Total contribution margin / Total sales) × 100

= {$3,550 (see note2) / $10,000 (given)} × 100

= 35.5% = 35.5 (answer)

Working note:

1. Total variable cost = Direct Labor + Direct Materials + Factory Overhead (variable portion) + Selling Expenses (variable portion) + Administrative Expenses (variable portion)

= $1,650 + $1,700 + $2,000 + $600 + $500

= $6,450

2. Total contribution margin = Total sales – Total variable costs

= $10,000 – $6,450

= $3,550

Question 4:

Required: - Breakeven point in units.

Breakeven point in units = Total fixed costs / Contribution margin per unit

= $2,950 (see note 5) / $39 (see note 4)

= 75.64

= 76 units (answer)

Working note:

1. Total variable cost = Direct Labor + Direct Materials + Factory Overhead (variable portion) + Selling Expenses (variable portion) + Administrative Expenses (variable portion)

= $1,100 + $1,900 + $2,000 + $600 + $500

= $6,100

2. Variable cost per unit = Total variable cost / Sales in units

= $6,100 / 100 units

= $61 per unit

(*** Here units sold and units produced is same as there is no opening or closing inventory therefore variable cost per unit is calculated using units sold.)

3. Sales price per unit = Total sales in dollar / Sales in units

= $10,000 / 100 units

= $100

4. Contribution margin per unit = Sales price per unit – Variable cost per unit

= $100 – $61

= $39

5. Total fixed cost = Factory Overhead (Fixed portion) + Selling Expenses (Fixed portion) + Administrative Expenses (Fixed portion)

= $950 + $1,000 + $1,000

= $2,950