Francois French manufactures cheese, which he normally sells at €20/kg, on which
ID: 2410091 • Letter: F
Question
Francois French manufactures cheese, which he normally sells at €20/kg, on which sales commission of 5% is paid. Plant capacity is 7,500 kg/month. Income tax is levied at 30%.
Fixed costs
Costs per kg.
Plant depreciation
€8,000
Direct materials
€4
Other plant costs
15,000
Direct labor
2
Corporate salaries
10,000
Var. factory O/H
3
Advertising
3,000
The number of kilograms to sell to break-even is:
3,273
3,600
3,000
2,300
none of the above
Fixed costs
Costs per kg.
Plant depreciation
€8,000
Direct materials
€4
Other plant costs
15,000
Direct labor
2
Corporate salaries
10,000
Var. factory O/H
3
Advertising
3,000
Explanation / Answer
B. 3,600
Break-even quantity = Total Fixed Costs/Contribution margin per unit
= €36,000/€10 = 3,600 kgs
Contribution margin per unit = Price - (Dir Mat + Dir Lab + Var OH) - Sales commission
= €20 - (€4 + €2 + €3) - 5% × €20 = €10
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