Question

The corporation you work for has asked for a summary and report of the future projections for the next 5 years. With the help of your CFO, you have put together the following preliminary budget figures based on last year's numbers for a planned production and sales level of 4,000 units per year:

Building depreciation	$200,000/yr.
Machine operators	$100,000/yr.
Management staff	$400,000/yr.
Direct materials	$4,000,000/yr.
Other expenses that seem to vary based on production levels	$3,000,000/yr.
Other expenses that don't seem to vary	$1,300,000/yr.
Selling price per unit	$5,000/unit
Utilities: This category is difficult to analyze; a part of it is related to the building's heat and light, whereas a part of it is used in the manufacturing process itself. You have the following data to which you will apply the high–low method: When there is no production, utility costs are $20,000/month When production levels reached 4,000 units/month, utility costs totaled $40,000/month

You are planning for the future and working on a report based on data from last year's actual performance. You are going to calculate various figures, including the contribution margin per unit, contribution margin ratio, breakeven level in dollars, and breakeven level in units to answer some important questions regarding your data.

Using only the data from last year's actual performance, create an Excel report that answers the questions below, showing all calculations. After completing your Excel computations, in Microsoft Word, write a professional memo to the executive committee analyzing the calculations from your report. Within the memo, give your opinion based upon the numbers as to whether production seems to be budgeted properly, and whether the corporation can make an adequate profit above breakeven levels. Please explain your rationale, and include answers to the following:

• Which costs would be considered mixed (e.g., semi-variable or semi-fixed)?
• Ignoring utility costs altogether, compute the contribution margin per unit, in dollars and in percentage, and the breakeven level of sales.
• Ignoring utility costs altogether, if instead of breaking even, the firm wants to make $10,000/month profit, answer the following:
  • How many units must be sold each month?
  • To how many sales dollars is this unit volume equivalent?
• In year 2, the CEO plans to add $300,000/yr. expenses in added administrative salaried headcount. Ignoring utility costs altogether, how many additional units must be sold just to pay for this added expense?

• Show ALL calculations.

Answer 1

Solution :

Which of these 8 cost categories would be considered variable, and which fixed, and explain why?
Which costs would be considered mixed (i.e., semi-variable or semi-fixed)?
Variable Costs
Machine Operators, direct materials and other expenses that seem to vary based on production levels because these costs vary as the production increases or decreases
Fixed Costs
Building Depreciation, Management staff and other expenses that don’t seem to vary because these costs are constant and would be incurred even if there is no production
Semi - Variable
Utilities are semi variable because partly they are variable and partly fixed
compute the contribution margin per unit, in dollars and in percentage and the breakeven level of sales?
			Per Unit		In Dollars	%
Sales per unit		5000		20000000	10000.00%
Less : Variable Costs
Direct Materials	(4000000/4000)	1000		4000000	20.00%
Machine Operators	100000/4000	25		100000	0.50%
Other Expenses	(3000000/4000)	750		3000000	15.00%
Contribution Margin Per unit	3225		12900000	64.50%
Breakeven level of Sales(Units) = Fixed Costs/Contribution margin per unit
			(200000+400000+1300000)/3225
			589.1473
Breakeven level of Sales(Dollars) = Fixed Costs/Contribution Ratio
			(200000+400000+1300000)/64.50%
			2945736
Ignoring utility costs altogether, if instead of breaking even, the firm wants to make $10,000/month profit, answer the following:
How many units must be sold each month?
No of Units To be Sold = (Fixed Costs + Target Profit)/(Contribution per unit)
Fixed Costs per month =	(200000+400000+1300000)/12		158333.333
No of Units to be sold	(158333.33+10000)/3225
			52.19638
No of Units to be Sold per month	52
Dollar Equivalent of Units Sold	(52*5000)			260981.91
the CEO plans to add $300,000/yr. expense in added administrative salaried headcount. Ignoring utility costs altogether, how many additional units must be sold just to pay for this added expense?
Additional Units to be sold to recover $ 300000/yr		300000/3225
						93.023256
Additional Units to be sold would be 93

____________________________________________________

Please upvote. Your upvote is extramly precious to me.Please upvote. Thank you so much. Please consider my efforts and request????‍♀️