Question

ABC corp has 2 plants to produce a single product that sells for a single price: $152. Variable manufacturing costs at plant A is 72 whereas plant B is 85. Fixed manufacturing costs per unit are 34 for plant A and 10 for plant B. Variable marketing costs are 8 for plant A and 12 for plant B whereas fixed distribution costs per unit are 22 and 15 for plants A and B respectively. Total capacity for each plant is 400 units per day and 320 units per day for plants A & B respectively. The normal number of workdays for both plants is 240 days, but they can expand to 300 days if they use overtime, which increases variable manufacturing cost per unit by $3 at plant A, and $8 for plant B. All fixed cost per unit calculations are based on a normal capacity of 240 days.

What is the break even point, in units, for plant A?

ABC corp has 2 plants to produce a single product that sells for a single price: $157. Variable manufacturing costs at plant A is 70 whereas plant B is 90. Fixed manufacturing costs per unit are 35 for plant A and 15 for plant B. Variable marketing costs are 15 for plant A and 11 for plant B whereas fixed distribution costs per unit are 16 and 15 for plants A and B respectively. Total capacity for each plant is 400 units per day and 320 units per day for plants A & B respectively. The normal number of workdays for both plants is 240 days, but they can expand to 300 days if they use overtime, which increases variable manufacturing cost per unit by $3 at plant A, and $8 for plant B. All fixed cost per unit calculations are based on a normal capacity of 240 days.

What is the total operating income if each plant produces 96,000 units?

ABC corp has 2 plants to produce a single product that sells for a single price: $160. Variable manufacturing costs at plant A is 76 whereas plant B is 83. Fixed manufacturing costs per unit are 26 for plant A and 12 for plant B. Variable marketing costs are 14 for plant A and 10 for plant B whereas fixed distribution costs per unit are 15 and 19 for plants A and B respectively. Total capacity for each plant is 400 units per day and 320 units per day for plants A & B respectively. The normal number of workdays for both plants is 240 days, but they can expand to 300 days if they use overtime, which increases variable manufacturing cost per unit by $3 at plant A, and $8 for plant B. All fixed cost per unit calculations are based on a normal capacity of 240 days.

What is the break even point, in units, for plant B?

Answer 1

1) Calculation of Fixed cost for Plant A

Number of Units produced as per normal capacity is:-

400 units per day * 240 days

= 96,000 units

Fixed cost per unit for manufacturing & distribution cost are 34 & 22 respectively

So the total fixed cost will be:-

(34+22)*96,000 = 5,376,000

Break even units =

Fixed cost/Contribution margin per unit

Contribution Margin =

Selling price - Variable cost per unit

= 152 - (72+8)

= 72 per unit

Break even units = 5,376,000/72

= 74,667 units.

2)

Fixed cost for Plant A & B

	A	B
Number of Units produced a day	400	320
Number of Working days	240	240
Total Production	96,000	76,800
Fixed cost per unit	(35+16) 51	(15+15) 30
Total Fixed cost	4,896,000	2,304,000

Contribution Margin per unit for A & B

A:-

157 - (70+15)

= 72

B:-

157 - (90+8+11)

= 48

NB:- Plant B uses its overtime so that it can produce 96,000 units.

Operating Income:-

	A	B	Total
Total Contribution Margin	(72*96,000) 6,912,000	(48*96,000) 4,608,000	11,520,000
(-) Fixed Cost	(4,896,000)	(2,304,000)	(7,200,000)
Operating Income	2,016,000	2,304,000	4,320,000

3) Fixed cost Calculation for B

320 units a day * 240 days

= 76,800 units

Per unit fixed manufacturing and distribution cost is 12 & 19 respectively

So the total Fixed cost will be:-

(12+19)*76,800

= 2,380,800

Contribution Margin Per Unit = 160 - (83+10)

= 67 per unit

Break even units = Fixed cost/CM per Unit

= 2,380,800/67

= 35,534