Bowie Company had sales of $9,000 (100 units at $90 per). Manufacturing costs co

Question

Bowie Company had sales of $9,000 (100 units at $90 per). Manufacturing costs consisted of direct labor $1,400, direct materials $1,200, variable factory overhead $1,100, and fixed factory overhead $600. Selling expenses totaled $1,600 ($600 variable and $1,000 fixed), and administrative expenses totaled $1,400 ($400 variable and $1,000 fixed). Operating income was $1,700. Round all final answers to nearest dollar or whole number.

Requirements:

What is the break-even point in sales dollars and in units if the fixed factory overhead increased by $1,700?

What is the break-even point in sales dollars and in units if costs remain as originally projected?

What would be the operating income if sales units increased by 25%?

Explanation / Answer

Rreq 1: Total Variable cost Material 1200 labour 1400 Variable factory OH 1100 Variable Selling OH 600 Variable Admin Oh 400 Total Variable cost 4700 Divide: Number of units 100 Variabble cost per unit 47 Contribution margin per unit: Selling price-variable cost 90-47 = 43 Cm ratio: CM per unit / Selling price *100 43/90 *100 = 47.78% Original fixed cost: Fixed factory Oh 600 Fixed Selling Oh 1000 Fixed Admin OH 1000 Total Fixed cost 2600 Revised Fixed cost: 2600+ 1700 = 4300 Revised break even in Units: Revised Fixed cost / Cm per unit 4300 / 43 = 100 units Revised Break even in $: Revised Fixed cost / CM ratio *100 4300 /47.78 *100 = $ 9000 Req 2 Original Break even in units: Original fixed cost / Cm per unit 2600 /43 = 61 units Original Break even in $: Original fixed cost / Cm ratio 2600 /47.78% = $ 5442 Req 3: Sales revenue (9000+25%) 11250 Less: Variable cost (4700+25%) 5875 Contribution 5375 Less: Fixed cost 2600 Operating income 2775

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