Sunflower Company manufactures and sells a product called “Sunshine”. Using regr
ID: 2413030 • Letter: S
Question
Sunflower Company manufactures and sells a product called “Sunshine”. Using regression analysis, company has determined the monthly behavior of manufacturing, selling, and administrative costs as follows:
Total Fixed Costs Variable per Unit
Manufacturing $350,000 $2.50
Selling $110,000 $1.10
Administrative $140,000 $0.40
Current selling price per unit of Sunshine is $10. The production capacity is up to 300,000 units per month and currently, company is manufacturing and selling 150,000 units of Sunshine per month.
1. How much is contribution margin per unit of Sunshine?
2. What is breakeven sales in units?
3. How many units of Sunshine must company manufacture and sell in order to have $300,000 per month?
4. Currently, company is manufacturing and selling 150,000 units of Sunshine. How much Sales of company can drop before losses begin to incur? Compute in dollar and in percentage.
Explanation / Answer
Answer
Requirement 1
A
Unit Sales price
$ 10.00
B
Total Unit Variable cost [2.5 + 1.1 + 0.4]
$ 4.00
C=A-B
Contribution margin per unit
$ 6.00 per unit
Requirement 2
A
Total Fixed Cost [350000 + 110000 + 140000]
$ 6,00,000.00
B
Contribution margin per unit
$ 6.00
C=A/B
Break Even Sales in Units
100,000 units
Requirement 3
A
Desired Profits
$ 3,00,000.00
B
Total Fixed Cost [350000 + 110000 + 140000]
$ 6,00,000.00
C=A+B
Total Contribution margin required
$ 9,00,000.00
D
Contribution margin per unit
$ 6.00
E=C/D
Units required to be sold to have $ 300000
150,000 units
Requirement 4
A
Current Unit Sales
150000 units
B
Sale price
$ 10.00
C=AxB
Total Current Sales dollars
$ 15,00,000.00
D
Break Even Unit sales
100,000 units
E=D c B
Break Even sales dollars
$ 10,00,000.00
F = C - E
Margin of Safety Sales
$ 5,00,000.00
G = F/C
Margin of Safety %
33.33%
--- Part of Requirement 4 explanation: Company’s sales can be dropped maximum by 33.33% or by 50,000 units [150,000 units x 33.33%]
If sales is decreased by more than 33.33%, Losses will begin to be incurred.
Requirement 1
A
Unit Sales price
$ 10.00
B
Total Unit Variable cost [2.5 + 1.1 + 0.4]
$ 4.00
C=A-B
Contribution margin per unit
$ 6.00 per unit
Requirement 2
A
Total Fixed Cost [350000 + 110000 + 140000]
$ 6,00,000.00
B
Contribution margin per unit
$ 6.00
C=A/B
Break Even Sales in Units
100,000 units
Requirement 3
A
Desired Profits
$ 3,00,000.00
B
Total Fixed Cost [350000 + 110000 + 140000]
$ 6,00,000.00
C=A+B
Total Contribution margin required
$ 9,00,000.00
D
Contribution margin per unit
$ 6.00
E=C/D
Units required to be sold to have $ 300000
150,000 units
Requirement 4
A
Current Unit Sales
150000 units
B
Sale price
$ 10.00
C=AxB
Total Current Sales dollars
$ 15,00,000.00
D
Break Even Unit sales
100,000 units
E=D c B
Break Even sales dollars
$ 10,00,000.00
F = C - E
Margin of Safety Sales
$ 5,00,000.00
G = F/C
Margin of Safety %
33.33%
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.