Hacker Aggregates mines and distributes various types of rocks. Most of the comp

Question

Hacker Aggregates mines and distributes various types of rocks. Most of the company's rock is sold to contractors who use the product in highway construction projects. Treva Hacker, company president, believes that the company needs to advertise to increase sales. She has proposed a plan to the other managers that Hacker Aggregates spend $100,000 on a targeted advertising campaign. The company currently sells 25,000 tons of aggregate for total revenue of $5,000,000. Other data related to the company's production and operational costs follow: Direct Labor $1,500,000 Variable Production Overhead 200,000 Fixed Production Overhead 350,000 Selling and Administrative Expenses Variable 50,000 Fixed 300,000 A. Compute the break-even point in units (i.e., tons) for Hacker Aggregates in tons

Explanation / Answer

Total Rev $5000,000 Less Direct labor: $1,500,000 Variable Production Overhead: 200,000 S&A Exp - Variable 50,000 --------------------------------- Total Cont $3,250,000 Less FC - Prod OH 350,000 S&A Exp 300,000 --------------------- Gross Profit $2,600,000 Rev per ton = Total Rev/No of Tons = $5000,000/25000 = $200 per ton COnt pu = $3250,000/25000 = $130 A. Compute the break-even point in units (i.e., tons) for Hacker Aggregates. tons BEP (Tons) = FC/Cont pu = (350,000+300000)/130 = 5000 Tons B. Compute the contribution margin ratio for Hacker Aggregates CM Ratio = Total Cont/Sales = 3250,000/5000,000 = 65.00% or 0.65

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