Perkins company produces and sells a single product. The Company\'s income state
ID: 2503638 • Letter: P
Question
Perkins company produces and sells a single product. The Company's income statement for the most recent month is given below:
Sales (15,000 units at $32 per unit)
$480,000
Less variable costs:
Direct materials (variable)
$67,500
Direct labor (variable)
75,000
Variable factory overhead
50,000
Variable selling and other expenses
40,000
232,500
Contribution margin
247,500
Less fixed expenses:
Fixed factory overhead
75,000
Fixed selling and other expenses
45,000
120,000
Net operating income
$127,500
There are no beginning or ending inventories.
Required:
Sales (15,000 units at $32 per unit)
$480,000
Less variable costs:
Direct materials (variable)
$67,500
Direct labor (variable)
75,000
Variable factory overhead
50,000
Variable selling and other expenses
40,000
232,500
Contribution margin
247,500
Less fixed expenses:
Fixed factory overhead
75,000
Fixed selling and other expenses
45,000
120,000
Net operating income
$127,500
Explanation / Answer
1) Breakeven point is when Profit = 0
so Sales = Costs
Sales = Variable Costs + Fixed Costs
(Sales - Variable Costs) = Fixed Costs
Contribution margin per unit * no of units = Fixed Costs
(247,500/15,000)*X = 120,000
X = 120,000*15,000/247,500 = 7272.727 Units ......................................(ans)
Breakeven in Sales Dollars = units * 32 = $ 232,727.273 ......................(ans)
2)
Net operating income = Contribution margin*1.25 - (Fixed Costs - 30,000)
Net operating income = 247,500*1.25 - 90,000 = $219,375
3)
Profit = Sales - Costs
45,000 = Contribution margin per unit * no of units - Fixed costs
45,000 = (247,500/15000)*X - 120,000
X = 165,000*15,000/247,500 = 10,000 units
4)
Direct Labor cost per unit = 75,000/15,000 = $5
New Direct Labor cost per unit = 0.5*5 = $ 2.5
New Fixed Factory overhead = 2*75,000 = $ 150,000
Fixed Costs = 150,000 + 45,000 = 195,000
Variable costs per unit = (67,500 + 50,000 + 40,000)/15,000 + $ 2.5 = $10.5 +2.5 = $13
Contribution margin per unit = unit sale price - variable costs per unit = 32 - 13 = $19
so breakeven occurs when
Contribution margin per unit * no of units = Fixed Costs
19*X = 195,000
X = 10,263.158 units
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