Question

Tempo Company's fixed budget (based on sales of 10,000 units) for the first quarter reveals the following. Fixed Budget Sales (10,000 units × $203 per unit) $ 2,030,000 Cost of goods sold Direct materials $ 230,000 Direct labor 430,000 Production supplies 260,000 Plant manager salary 30,000 950,000 Gross profit 1,080,000 Selling expenses Sales commissions 80,000 Packaging 150,000 Advertising 100,000 330,000 Administrative expenses Administrative salaries 80,000 Depreciation—office equip. 50,000 Insurance 20,000 Office rent 30,000 180,000 Income from operations $ 570,000 (1) Compute the total variable cost per unit. (2) Compute the total fixed costs. (3) Compute the income from operations for sales volume of 8,000 units. (4) Compute the income from operations for sales volume of 12,000 units.

Compute the total variable cost per unit.

	Variable cost per unit

• Compute the total fixed costs.

  	Total fixed costs

Compute the income from operations for sales volume of 8,000 units.

	Income from operations at sales of 8,000 units

Compute the income from operations for sales volume of 12,000 units.

	Income from operations at sales of 12,000 units

Answer 1

a&b)Variable cost varies with output whereas fixed cost has no relation to output and remains constant .

Calculation of Variable cost per unit and fixed cost:

	Variable cost	Fixed cost
Direct material	230000
Direct labor	430000
Production supplies	260000
Plant manager salary		30000
Sales commissions	80000
Packaging	150000
Advertising		100000
Administrative salaries		80000
Depreciation—office equip.		50000
Insurance		20000
Office rent		30000
Total	1150000	310000
Number of units	10000
Variable cost per unit	1150000/10000=$ 115 per unit

a)Variable cost per unit =$ 115 per unit

b)Fixed cost = 310000

c)

	At 8000 units
Sales (8000*203)	1624000
less:variable expense (8000*115)	(920000)
contribution margin	704000
less:fixed cost	(310000)
Net operating income	394000

d)

	At 12000 units
Sales (12000*203)	2436000
less:variable expense (12000*115)	(1380000)
contribution margin	1056000
less:fixed cost	(310000)
Net operating income	746000