Question

Overhead Cost and Break Even As the management accountant for Superior Log Cabins, Inc. you have been asked to attend a planning meeting for the 2012 season. The owner specifically wants to know how many log cabins must be sold to earn a profit of $300,000 in 2012. The company makes three models of cabins: deluxe, standard, and basic. At the end of 2011, the local utility company began charging Superior as a mixed cost: an annual fee plus a variable cost for each kilowatt of power the company uses (rather than solely at a fixed rate). Each cabin (all three models) requires approximately 8,000 kilowatt hours of electricity. The company needs to add that new utility cost to the projected income statement for 2012. Cabins are constructed at three separate locations (one for each model), so the utility company will estimate costs separately for each model. The owner estimates that sales in 2012 will be 25 basic cabins, 35 deluxe cabins, and 55 standard cabins, and they will produce exactly that quantity. The current selling price per unit is $79,000 for basic, $112,000 for deluxe, and $91,000 for standard cabins and will not increase next year. Assume that there are $150,000 of fixed administrative expenses per model and $5,500 of variable selling expenses for each camper sold, no matter what model it is. The company uses job order costing. See 'Business Issue Data Formatted' sheet for these data assumptions in table, rather than text, form.

Answer 1

***Figure of power expenses is assumed in absence of specific mention of the its figures. If you would like to change it than you can, approach to solve the answer would be same***

	Deluxe	Standard	Basic
Variable Selling Expenses	$        5,500.00	$         5,500.00	$         5,500.00	a
Variable Power Expenses	$      97,500.00	$    104,500.00	$       90,500.00	b
Fixed Adm Cost	$   150,000.00	$    150,000.00	$    150,000.00	c
Total Cost	$   253,000.00	$    260,000.00	$    246,000.00	d = a+b+c
Profit Required	$   300,000.00	$    300,000.00	$    300,000.00	e
Total Sales	$   553,000.00	$    560,000.00	$    546,000.00	f = d+e
Sales Price	$      79,000.00	$    112,000.00	$       91,000.00	g
No. of units	7.00	5.00	6.00	g/f