Question

Buttermilk bakery has provided the following cost data for the last year when 103,000 loaves of bread were produced and sold.

Raw Material $245.150

Direct labor $83,430

Manufacturing overhead $192,450

Selling and administrative costs $159,090

All costs are variable except for $116,230 overhead and $76,690 selling and administrative. The sales price was $10 per loaf.

A) How many units must be sold to meet a target operating income of $348,309

B) If Buttermilk desires a target operating income of $152,600, what is the amount of sales dollars needed to reach his target?

C)What would be the operating income from producing 84,900 loaves?

Explain each question thoroughly pleaaaase! :)

Answer 1

For 103,000 loaves of bread following data is given. The data is being broken down into fixed and variable cost and cost per unit -

Raw Materials - 245,150 for 103,000 pieces

Raw material cost per unit = 245,150/103,000

= $ 2.38 per unit

Direct labour - 83,430 for 103,000 pieces

Direct labour per unit = 83,430 / 103,000

= $ 0.81 per unit

Manufacturing overheads of $ 192,450 includes fixed overheads of $ 116,230.

This fixed overhead will remain same at all levels and variable overhead will keep fluctuating depending upon level of production.

Variable manufacturing overhead per unit

= (192,450 - 116,230) / 103,000 = $ 0.74 per unit

Similarly,

Selling and administrative expenses of $ 159,090 includes fixed selling cost of $ 76,690.

Variable selling and administrative cost per unit

= (159,090 - 76,690) / 103,000 = $ 0.8 per unit

Selling price of loaf = $ 10 per unit

Total variable cost = $ 2.38 + $ 0.81 + $ 0.74 + $ 0.80 = $ 4.73 per unit

Contribution per unit = Sale Price - Variable cost

Contribution per unit = 10 - 4.73 = $ 5.27 per unit

Operating income includes all income and expense except interest and income tax. No interest or income tax has been mentioned in the question. Thus, all expense need to be deducted to arrive at operating income.

1)

Target operating income = $ 348,309

Fixed costs = $ 116,230 + $ 76,690 = $ 192,920

Total amount to be earned = Desired profit + Fixed cost = $ 348,309 + $ 192,920 = $ 541,229

Units to be sold = Total amount / Contribution per unit

Units to be sold = 541,229 / 5.27 = 102,700 units

2)

Target operating income = $ 152,600

Fixed cost to be recovered = $ 192,920

Total amount to be recovered = $ 192,920 + $ 152,600 = $ 345,520

Units to be sold = 345,520 / 5.27 = 65,564 units

In Dollars = 65,564 * 10 = $ 655,640

The answer has been rounded off to nearest whole number as loaf cannot be sold in fraction. Hence, units sold rounded off to nearest whole number.

3)

Units to be produced and sold = 84,900

Total Contribution earned = 84,900 * 5.27 = $ 447,423

Total Fixed cost = $ 192,920

Total operating income = Total contribution - total fixed cost

Total operating income = $ 447,423 - $ 192,920 = $ 254,503