Question

Fanning Manufacturing Company reported the following data regarding a product it manufactures and sells. The sales price is $48.

Variable costs
Manufacturing	$	18	per unit
Selling		4	per unit
Fixed costs
Manufacturing	$	154,000	per year
Selling and administrative	$	189,200	per year

Required

1. Use the per-unit contribution margin approach to determine the break-even point in units and dollars.

2. Use the per-unit contribution margin approach to determine the level of sales in units and dollars required to obtain a profit of $187,200.

3. Suppose that variable selling costs could be eliminated by employing a salaried sales force. If the company could sell 20,300 units, how much could it pay in salaries for salespeople and still have a profit of $187,200? (Hint: Use the equation method.)

Answer 1

a.)	Per unit Contribution Margin	26	=48-18-4
	( Sales price - Variable Costs)
	Breakeven points in Units	13,200	=(154000+189200)/26
	( Fixed Costs / per unit Contribution margin )
	Breakeven points in Dollars	$ 633,600	=13200*48
	( Breakeven points in Units x sales price )
b.)	Level of sales in units	20,400	=(154000+189200+187200)/26
	( Fixed Costs + Profit )/ per unit Contribution margin
	Level of sales in dollars	$ 979,200	=20400*48
	( Level of sales in units x sales price )

c.)	Let Assume the salaries for sales person be Y
	( 20,300 x ( 48 - 18 ) ) - (154,000+189,200) - Y = 187,200
	(20,300 x 30 ) - 343,200 - Y = 187,200
	609,000 - 343,200 - Y = 187,200
	265,800 - Y = 187,200
	Y = 265,800 - 187,200
	Y = 78,600
	It could pay in salaries of $ 78,600 and still have a profit of $ 187,200 )