Question

Account Analysis and Contribution Margin Income Statement. Downhill Company would like to estimate costs associated with its production of bike helmets on a monthly basis. The accounting records indicate the following production costs were incurred last month for 4,000 helmets.

Assembly workers’ labor (hourly)	$70,000
Factory rent	3,000
Plant manager’s salary	5,000
Supplies	20,000
Factory insurance	12,000
Materials required for production	20,000
Maintenance of production equipment (based on usage)	18,000

Required:

1. Use account analysis to estimate total fixed costs per month and the variable cost per unit. State your results in the cost equation form Y = f + vX by filling in the dollar amounts for f and v.

2. Estimate total production costs assuming 5,000 helmets will be produced and sold.

3. Prepare a contribution margin income statement assuming 5,000 helmets will be produced, and each helmet will be sold for $70. Fixed selling and administrative costs total $10,000. Variable selling and administrative costs are $8 per unit.

Answer 1

Account Analysis for Production of Bike Helmets
			Amounts in $
Particulars	Last Month	Nature
Cost	Per Unit [ basis 4,000 Helmets ]
Production Materials	20,000	5	Variable
Assembly Workers' Labour	70,000	18	Variable
Supplies	20,000	5	Variable
Maintenance of Production Equipment	18,000	5	Variable
Plant Manager's Salary	5,000		Fixed
Factory Rent	3,000		Fixed
Factory Insurance	12,000		Fixed
Total Variable Cost = $ 33
Total Fixed Cost = $ 20,000
Y = f + v(x) ===> Y = $ 20,000 + $ 33 (X Units)
Cost Sheet for 5,000 Helmets
		Amounts in $
Particulars	Rate (Per Unit)	Value
Sales	70	350,000
Less: Variable Cost	41	205,000	==> $ 33 + $ 8
Contribution	29	145,000
Less: Fixed Cost		30,000	==> $ 20,000 + $ 10,000
Profit	23	115,000