2. Bubba\'s Steakhouse has budgeted the following costs for a month in which 1,6
ID: 2767091 • Letter: 2
Question
2. Bubba's Steakhouse has budgeted the following costs for a month in which 1,600 steak dinners will be produced and sold: Materials, $4,080; hourly labor (variable), $5,200; rent (fixed), $1,630; depreciation, $690; and other fixed costs, $440. Each steak dinner sells for $13.90 each. How much would Shula's profit increase if 10 more dinners were sold?
3. Carry-ALL plans to sell 1,300 carriers next year and has budgeted sales of $46,000 and profits of $22,000. Variable costs are projected to be $20 per unit. Michael Co. offers to pay $21,600 to buy 690 units from Carry-ALL. Total fixed costs are $7,000 per year. This offer does not affect Carry-ALL's other planned operations. The incremental revenues for this situation are
Explanation / Answer
1)Fixed cost is irrelevant to compute the incremental profit.
Total variable cost = Material + Labor
= $ 4,080 + $ 5,200 = $9,280
Variable cost per unit = $ 9,280/1,600 = $ 5.80
Contribution per unit = Selling price – variable cost = $ 13.90 – 5.80 = $ 8.1
= 8.1 x 10 =$ 81
The total incremental contribution is incremental revenue as fixed is already recovered.
2) Selling price =$ 46,000/13,000 = $ 35.38
- Variable cost - 20
Contribution per unit 15.38
Total Contribution = 690 x 15.38 = $ 11,358
Incremental revenue = $ 11,358
The total incremental contribution is incremental revenue as fixed is already recovered.
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