Ionic Charge, is a newly organized manufacturing business that plans to manufact
ID: 2427329 • Letter: I
Question
Ionic Charge, is a newly organized manufacturing business that plans to manufacture and sell 60,000 units per year of a new product. The following estimates have been made of the company’s costs and expenses (other than income taxes):
What should the company establish as the sales price per unit if it sets a target of earning an operating income of $700,000 by producing and selling 60,000 units during the first year of operations? (Hint: First compute the required contribution margin per unit.)
At the unit sales price computed in part a, how many units must the company produce and sell to break even? (Assume all units produced are sold.)
What will be the margin of safety (in dollars) if the company produces and sells 60,000 units at the sales price computed in part a?
Ionic Charge, is a newly organized manufacturing business that plans to manufacture and sell 60,000 units per year of a new product. The following estimates have been made of the company’s costs and expenses (other than income taxes):
Fixed Variable per Unit Manufacturing costs: Direct materials $ 25 Direct labor 15 Manufacturing overhead $ 500,000 8 Period costs: Selling expenses 2 Administrative expenses 300,000 Totals $ 800,000 $ 50 Instructions a.What should the company establish as the sales price per unit if it sets a target of earning an operating income of $700,000 by producing and selling 60,000 units during the first year of operations? (Hint: First compute the required contribution margin per unit.)
Sales price per unit $700,000 b.At the unit sales price computed in part a, how many units must the company produce and sell to break even? (Assume all units produced are sold.)
c.
What will be the margin of safety (in dollars) if the company produces and sells 60,000 units at the sales price computed in part a?
Explanation / Answer
Ionic Charge Marginal Costing Details Amt $ Variable cost per unit Direct materials per unit 25.00 Direct Labor /unit 15.00 Variable manufacturing Overhead /unit 8.00 Variable selling cost/unit 2.00 Total Variable cost /unit 50.00 Fixed costs Fixed manufacturing overhead 500,000.00 Fixed Admin Overhead 300,000.00 Total fixed cost 800,000.00 a Target net operating income 700,000 Add Fixed costs 800,000 Total Contrution required 1,500,000 Units to be sold 60,000.00 Unit contribution required 25.00 Unit variable cost 50.00 Required unit selling price= 75.00 b Unit selling price 75.00 Unit variable cost 50.00 Unit contribution margin 25.00 Total Fixed cost 800,000.00 BEP units=800000/25= 32,000.00 Break even sales $=32000*75= 2,400,000.00 c when sales units = 60,000.00 Sales revenue = 4,500,000.00 Break even sales $ 2,400,000.00 Margin of safety $ 2,100,000.00
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