Artistic Lighting manufactures display lighting for elegant homes and art galler
ID: 2480430 • Letter: A
Question
Artistic Lighting manufactures display lighting for elegant homes and art galleries. In preparing for next year's operations, management has developed the following estimates:
Total
Per Unit
Sales (30,000 units)...................
$2,400,000
$80.00
Direct materials...............................
$450,000
$15.00
Direct labor (variable)..............
$180,000
$6.00
Manufacturing overhead:
Variable.........................................
$270,000
$9.00
Fixed.................................................
$165,000
Selling & administrative:
Variable.........................................
$120,000
$4.00
Fixed.................................................
$42,900
Required: Compute the following items – show your calculations:
a. Unit contribution margin.
b. Contribution margin ratio.
c. Break-even in units and dollar sales.
d. Compute the dollar sales needed in order to earn a monthly net operating income of $50,000:
e. If the per unit variable production costs increase by 15%, and if fixed selling and administrative expenses increase by 12%, what will be the new break-even point in units and dollar sales?
Total
Per Unit
Sales (30,000 units)...................
$2,400,000
$80.00
Direct materials...............................
$450,000
$15.00
Direct labor (variable)..............
$180,000
$6.00
Manufacturing overhead:
Variable.........................................
$270,000
$9.00
Fixed.................................................
$165,000
Selling & administrative:
Variable.........................................
$120,000
$4.00
Fixed.................................................
$42,900
Explanation / Answer
a. Calculation of unit contribution margin = Sale per unit - variable exp per unit
= 80 - (15+6+9+4)
= $46
b. Contribution margin ratio = COntribution per unit/ Sale per unit * 100
= 46/80 * 100
= 57.50%
c. Breakeven in units = Fixed exp/contribution per unit
= (165000+42900)/46
= 4519.56 units or 4520 units
Breakeven in dollar sales = Breakeven units * sale price per unit
= 4520 * 80
= $361600
d. sales required to earn net operating income of $50000 = (Fixed exp + 50000)/contribution margin
= (165000+42900+50000)/57.50%
= $448521.74
e. Revised contribution = sale per unit - revised variable cost per unit
= 80 - {(15+6+9)*1.15 + 4)
=41.5
Revised fixed selling & admn exp = 42900*1.12
= 48048
Breakeven in units = (48048+165000)/41.50
= 5133.69 units or 5134 units
Breakeven in dollar sales = 5134*$80
= $410720
Note : Production variable exp includes Direct material, Direct labor and varibale production exp
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