Question

1) Weatherspoon Company has a product with a selling price per unit of $200, the unit variable cost is $110, and the total monthly fixed costs are $300,000. How much is Weatherspoon’s contribution margin per unit?

a. $ 90 b. $110 c. $200 d. $300

2) An Italian bakery on Franklin Avenue in Hartford is famous for its cakes. The bakery sells its cakes for $19.95 to the public. The cost for the ingredients and labor to make the cake are $8.45 per cake, and the fixed costs for the bakery for one month are $8,050.

a) Assuming that this bakery only sells cakes, what is the break-even point in number of cakes?

b) This bakery sells 1,500 cakes for the month of April. What is the expected net income?

3) Lotz Painting Company has the following production data for March:

• Beginning work in process, 0 units

• Units transferred out, 42,000

• Units in ending work in process, 10,000, which are 80% complete for conversion costs

Materials are added only at the beginning of the process.

Instructions

Compute equivalent units of production for both materials and conversion costs.

Answer 1

1

Ans - $90 (Option 'a')

Contribution margin per unit = Selling price per unit - Variable cost per unit
=> ($200 - $110)
=> $90 contribution margin per unit (Ans)

2(a)

Ans - 700 cakes

Break even point (number of cakes) = (Fixed cost / Contribution margin per cake)
Fixed cost = $8050
Contribution margin per cake = Selling price per unit - Variable cost per unit
=> ($19.95 - $8.45)
=> $11.50
So, Break even point (number of cakes) = ($8050 / $11.50)
=> 700 cakes (Ans)

2(b)

Computation of net income when 1500 cakes are sold

Particulars	Amount ($)
Sales revenue (1500 cakes X $19.95)	29925
Less: Variable costs (1500 cakes X $8.45)	(12675)
Less: Fixed cost	(8050)
Net Income	$9200

3

Computation of Equivalent units

Particulars	Material	Conversion cost
Units transferred out	42000	42000
Units in ending work in process	10000	8000 (10000 units X 80%)
Equivalent units	52000 units	50000 units

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