1.For the coming year, River Co. estimates fixed costs @ $109,000, the unit vari

Question

1.For the coming year, River Co. estimates fixed costs @ $109,000, the unit variable cost @ $21, & the unit selling price @$85. Determine (a) the break-even point in units of sales, (b) the unit sales required to realize operating income of $150,000, (c) the probable operating income if sales total $500,000.


2.Crow Manufacturers, Inc projected sales of 75,000 bicycles for 2012. The estimated Jan1, 2012 inventory is 5,000 units, & the desired Dec 31,2012, inventory is 8,000 units. What is the budgeted production (in units) for 2012?

Explanation / Answer

1.For the coming year, River Co. estimates fixed costs @ $109,000, the unit variable cost @ $21, & the unit selling price @$85. Determine

(a) the break-even point in units of sales,

Contribution margin per unit = Selling price – Variable costs = 85 – 21 = 64

Break even point in units = Fixed costs/contribution margin per unit = 109,000/64 = 1704 rounded up.

(b) the unit sales required to realize operating income of $150,000,

Unit sales required to realized 150,000 operating income = (Fixed costs + 15,000/contribution margin per unit = (109,000 + 150,000)/64 = 4047 rounded up.

(c) the probable operating income if sales total $500,000.

Operating income = sales*contribution margin percent – fixed costs

Operating income = 500,000*(64/85) – 109,000 = $267,470.59

2.Crow Manufacturers, Inc projected sales of 75,000 bicycles for 2012. The estimated Jan1, 2012 inventory is 5,000 units, & the desired Dec 31,2012, inventory is 8,000 units. What is the budgeted production (in units) for 2012?

Budgeted production = sales + ending inventory – beginning inventory = 75,000 + 8,000 – 5,000 = 78,000

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