4. Tremont Manufiacturing manufactures widgets. Price and cost data for a releva
ID: 2519119 • Letter: 4
Question
4. Tremont Manufiacturing manufactures widgets. Price and cost data for a relevant range up to 200,000 units per month are as follows Sales price per unit (current monthly sales volume is 140,000 units) S 50.00 Variable costs per unit Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative expenses 4.60 12.00 5.20 4.20 Monthly fixed expenses: 584,000 894,400 Fixed manufacturing overhead Fixed selling and administrative expenses What is Tremont's contribution margin per unit? Contribution margin ratio? Total contribution margin? a. b. What would their operating income be if they sold 170,000 units? What would their operating income be if they had sales of $9,000,000? c. d. What is the breakeven point in sales dollars? How many units would they have to sell to earn a target profit of $539,000? e.Explanation / Answer
Answer of Part a:
Variable cost per unit = Direct Material + Direct Labor + Variabke Manufacturing Overhead + Variabl Selling and Administrative Expenses
Variable Cost per unit = $14.60 + $12 + $5.20 + $4.20
Variable Cost per Unit = $36
Contribution Margin per Unit = Selling Price – Variable cost per unit
Contribution Margin per Unit = $50 - $36
Contribution Margin per unit = $14
Contribution Margin Ratio = Contribution Margin per unit / Selling Price per unit
Contribution Margin Ratio = $14 / $50
Contribution Margin Ratio = 28%
Total contribution Margin = No. of unit * Contribution Margin per unit
Total Contrbution Margin = 140,000 * $14
Total Contribution Margin = $1,960,000
Answer of Part B:
Contribution Margin = No. of Unit * Contribution Margin per Unit
Contribution Margin = 170,000 * $14
Contribution Margin = $2,380,000
Total Fixed Expenses = Fixed Manufacturing Overhead + Fixed Selling and Administrative Expenes
Total Fixed Expeness = $584,000 + $894,400
Total Fixed Expenses = $1,478,400
Operating income = Contribution Margin – Total Fixed Expenes
Operating Income = $2,380,000 - $1,478,400
Operating Income = $901,600
Answer of Part C:
No. of Unit = Selling price / Selling price per Unit
No. of Unit = $9,000,000 / $50
No. of Unit = 180,000
Contribution Margin = No. of Unit * Contribution Margin per unit
Contribution Margin = 180,000 * $14
Contribution Margin = $2,520,000
Operating Income = Contribution Margin – Total Fixed expenses
Operating Income = $2,520,000 - $1,478,400
Operating Income = $1,041,600
Answer of Part d:
Break Even Point = Fixed Epenses / Contribution Margin Ratio
Break Even point = $1,478,400 / 0.28
Break Even Point = $5,280,000
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