Draaksh Corporation sells premium quality wine for $85 per bottle. Its direct ma

Question

Draaksh Corporation sells premium quality wine for $85 per bottle. Its direct materials and direct labour costs are $18 and $9.50 respectively per bottle. It pays its direct labour employees a wage of $19 per hour The company performed a regression analysis using the past 12 months' data and established the following monthly cost equation for manufacturing overhead costs using direct labour hours as the overhead allocation base y 151,700 $20.00x Draaksh believes that the above cost estimates will not substantially change for the next fiscal year. Given the stiff competition in the wine market, Draaksh budgeted an amount of $33,400 per month for sales promotions; additionally, it has decided to offer a sales commission of $4.50 per bottle to its sales personnel. Administrative expenses are expected to be $24,700 per month. Required: 1. Compute the expected total variable cost per bottle and the expected contribution margin ratio. Total variable cost Contribution margin ratio 2. Compute the annual break-even sales in units and dollars. (Round your intermediate and final answers to the whole number.) Annual breakeven sales in units Annual breakeven sales in dollars 3. Draaksh has budgeted sales of $8.2 million for the next fiscal year. What is the company's margin of safety in dollars and as a percentage of budgeted sales? (Round your intermediate and final answers to the whole number.) Margin of safety Budgeted sales

Explanation / Answer

Computation of total expected Varaiable Cost/Bottle and Contribution Margin Ratio Particular Amount Amount Selling price $85.00 Variable cost per unit: Material $16.00 labour $9.50 Manufacturing OH ((9.5/19) @ $20) $10.00 sales commission $4.50 Total variable cost per unit $40.00 Contribution margin per unit $45.00 Contribution Margin Ratio (45/85*100) (Round off) 52.94% Computation of Annual Breakeven Sales in Unit & $ Particular Amount Amount Fixed mfg OH $151,700 Admin OH: $24,700 Sales promotion $33,400 Total Fixed cost: $209,800 BEP( Units) Fixed Cost/Contribution P. Unit 55947 Unit {($209800*12)/$45)} BEP (in $)=Fixed Cost/CM Ratio {(209800*12)/52.94%} $4,755,572 Computation of Annual Breakeven Sales in Unit & $ Particular Amount Amount Annual Sales $8,200,000 Annual Breakeven Sales $4,755,572 Margin of Safety ( Actual Sales- BEP Sales) $3,444,428 Budgeted Sales %($3444428/8200000)*100 42%

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