The following information applies to the questions displayed below,J This year B
ID: 2452125 • Letter: T
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The following information applies to the questions displayed below,J This year Bertrand Company sold 40,000 units of its only product for $25 per unit. Manufacturing and selling the product required $200,000 of fixed manufacturing costs and $325,000 of fixed selling and administrative costs. Its per unit variable costs follow. Material Direct labor (paid on the basis of completed units) Variable overhead costs Variable selling and administrative costs $ 8.00 5.00 1.00 Next year the company will use new material, which will reduce material costs by 50% and direct labor costs by 60% and will not affect product quality or marketability. Management is considering an increase in the unit sales price to reduce the number of units sold because the factory's output is nearing its annual output capacity of 45,000 units. Two plans are being considered. Under plan 1, the company will keep the price at the current level and sell the same volume as last year. This plan will increase income because of the reduced costs from using the new material. Under plan 2, the company will increase price by 20%. This plan will decrease unit sales volume by 10%. Under both plans 1 and 2, the total fixed costs and the variable costs per unit for overhead and for selling and administrative costs will remain the same.Explanation / Answer
Sales =40,000 units
Selling price = $ 25 per unit
Fixed costs
Manufacturing costs =$200,000
Selling and manufacturing costs =$325,000
Variable cost =Material + labour + variable overhead costs +variable selling and administrative expenses
Plan 1
Sales 40,000
Variable Costs:
Material 4
Direct Labour 2
Variable overhead costs 1
Variable S & A costs 0.50
Total variable costs 7.50
Contribution margin =Sales -variable costs =40,000 * 25 -40,000 * 7.50=7,00,000
Contribution margin % = Contribution /Sales * 100 =700000/1000000 * 100=70 percent
Contribution margin per unit =7,00,000/40,000=17.5
Break even point =Fixed cost/Contribution margin per unit =525000/17.5=30,000 $
Plan 2
New sales =36,000
Price =20
Contribution margin =Sales -variable costs =36,000 * 20 - 36,000 * 7.50=4,50,000
Contribution margin % = Contribution /Sales * 100 =4,50,000/7,20,000* 100=62.5 %
Contribution margin per unit =4,50,000/36,000 =12.5
Break even point =Fixed cost/Contribution margin per unit =525000/12.5=42,000 $
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