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aiurR-??????Rr1RM @ ? > C O ? Ohttp://erto.rnheducationconthm.tpar-031770246661 1214-10??1 ushexeR1?? Questions 1- 2 (of 3) IThe following information applies to the questions displayed below] This year Cairo Company sold 27000 uni its of its only product for $1960 per unit Manufacturing and selling the product recuired $112.000 of fixed manufacturting costs ond $172.000 of fiwed selling and administrative costs. Its per unlt varlable costs follow Material Direct labor (pald on the basis of completed units) Variable overhead costs Variable selling and administretive costs $ 3 20 2.20 0.32 0.12 Next year the company will use new material, which will reduce material costs by 60% and direct labor costs by 40% 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 32.000 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 25%. 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. volue 10.00 points

Explanation / Answer

Answer 1. Plan 1 Plan 2 SP per Unit              19.60              24.50 Variable Cost per Unit Material - $3.20 X 40%                 1.28                 1.28 Direct Labor - $2.20 X 60%                 1.32                 1.32 Variable Overhead                 0.32                 0.32 Variable Selling & Admn. Costs                 0.12                 0.12 Total Variable Cost per Unit                 3.04                 3.04 Contribution Margin Per Unit              16.56              21.46 Contribution Margin Ratio 84.49% 87.59% Fixed Costs Manufacturing Costs          112,000          112,000 selling & Admn. Expense          172,000          172,000 Total Fixed Costs          284,000          284,000 BEP (In $)          336,135          324,231 BEP (In $) = Fixed Cost / Contribution Margin Ratio Contribution Margin Ratio = Contribution / Sales Answer 2. CAIRO CO. Forecasted Contribution Margin Income Statement Plan 1 Plan 2 Sales (in Units)            27,000            24,300 Sales (In $)          529,200          595,350 Variable Costs            82,080            73,872 Contribution Margin          447,120          521,478 Fixed Costs          284,000          284,000 Income Before Tax          163,120          237,478 Taxes -40%            65,248            94,991 Net Income            97,872          142,487

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