Question

PROBLEM: Front Range Furniture expects to maintain the same inventories at the end of 2020 as at the beginning of the year. The total of all production costs for the year is assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs of their departments during the year. A summary report of these estimates is as follows:

                                                                        Estimated variable cost                   Estimated Fixed cost

Production costs:                          

Direct material                                                       50     

Direct labor                                                             30    

Factory overhead                                                                                                         350,000

Selling Expense:

Sales salaries/ commission                                     4                                                           340,000

Travel                                                                                                                                           4,000

Advertising                                                                                                                              116,000

Miscellaneous Selling expenses                             1                                                               2,300

Administrative Expenses:

Management and office staff salaries                                                                                325,000

Office supplies                                                          4                                                                 6,000

Misc. Administrative expenses                              1                                                                 8,700

                                                                                ----------                                                     --------------

                                                                                    $90                                                        $1,152,000

It’s expected that 12,000 units will be sold at a price of $240 per unit. Maximum sales within the relevant range are 18,000.

Required: Complete the chart in your working papers to calculate total fixed and variable costs (see the Working Papers for more detailed instructions).

Answer 1

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Front Range Furniture
Calculation variable costs and sales revenue
Units	12,000.00	Per unit data	Formula used for totals
Sales	2,880,000.00	240.00	Sell price* Units
Variable costs
Direct materials	600,000.00	50.00	Direct materials* Units
Direct labor	360,000.00	30.00	Direct labor* Units
Sales salaries/ commission	48,000.00	4.00	Sales commission* Units
Miscellaneous Selling expenses	12,000.00	1.00	Miscellaneous Selling expenses* Units
Office supplies	48,000.00	4.00	Office supplies* Units
Misc. Administrative expenses	12,000.00	1.00	Misc. Administrative expenses* Units
Total Variable costs	1,080,000.00	90.00
Contribution margin		150.00
Fixed Costs
Factory overhead	350,000.00
Selling Expense:	340,000.00
Sales salaries	4,000.00
Travel	116,000.00
Advertising Expense	2,300.00
Miscellaneous Selling expenses	325,000.00
Office supplies	6,000.00
Misc. Administrative expenses	8,700.00
Total Fixed Costs	1,152,000.00
Final Answer	Amount $
Sales (In units)	12,000.00
Contribution margin (per unit)	150.00
Contribution margin	1,800,000.00
Fixed costs	1,152,000.00
Operating Income	648,000.00