Sandpiper company\'s relevant range of production is 9500 units to 14500 units.

Question

Sandpiper company's relevant range of production is 9500 units to 14500 units. At the current sales of 12000 units. its units cost are as follows.

selling price $24.00

Variable manufacturing cost $8.90

Fixed manufacturing overhead $3.00

Fixed selling and admin, expense $4.20

Sales commissions $1.20

Variable administrative expense $0.45

a) What is the sales revenue sandpiper needs to break even?

a. 6424

b. 154171

c.196550

d. 64238

e. none of the above

B) If sandpiper is able to increase their sales by 10% by how much would their income increase or decrease

a. $7500

b. $89010

c. $91140

d. $16140

d. None of the above

Explanation / Answer

Total variable cost per unit=(Variable manufacturing cost+Sales commissions+Variable adminsitrative expenses)

=(8.9+1.2+0.45)=$10.55

Total fixed costs=(3+4.2)*12000=$86400

Contribution margin=(Sales-Variable costs)

=(24-10.55)=$13.45

1.Breakeven=Fixed costs/Contribution margin

=(86400/13.45)=6424(A).

2.Increase in Sales =(12000*10%)=1200 units

Hence increase in income=1200 units@$13.45

=$16140(D)(Fixed costs do not change with change in units.After breakeven;income would increase by the increase in units sold multiplied by the contribution margin per unit].

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