Maxwell Company manufactures and sells a single product. Price and cost data reg
ID: 2407493 • Letter: M
Question
Maxwell Company manufactures and sells a single product. Price and cost data regarding Maxwell's product and operations for fiscal year 2016 are as follows (presented under absorption or full costing) Revenue (120,000 units) Less: Cost of sales S3,000,000 $1,320,000 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead 600,000 300,000 192,000 2,412,000 Gross margin Less: Variable selling expenses S588,000 $156,000 Fixed selling and administrative expenses 276,000432,000 Net income $156,000 Required: a. Compute the number of units required to be produced and sold in order to earn direct costing profits of $260,000 in 2017; you may assume that in 2017, fixed costs, as well as per unit variable cost and (per unit) selling prices are the same as for fiscal year 2016Explanation / Answer
Req a: Selling price per unit (3000,000/120,000): 25 Total contribution: Sales 3,000,000 Less: Variable cost Material 1320000 Labouor 600000 Manufacturing OH 300000 Variable Selling expense 156000 Contribution earned 624,000 Contribution margin per unit (624000/120000) 5.2 Fixed cost: Fixed Manufacturing OH 192000 Fixed selling and admin oh 276000 Total Fixed cost 468000 Add: Desired profits 260000 Desired contribution 728000 Target sales in units: Desired contribution/ Contribution margin per unit 728000 /5.20 = 140,000 units Req b: Variable cost in 2016 (25-5.20) 19.8 Add: Increased labout cost per unit 0.4 (600000/120000)*8% Revised variable cost per unit 20.2 Selling price per unit 25 Contribution margin per unit 4.8 Brek even units: Total fixed cost / revised Contribution margin per unit 468000 /4.80 = 97500 units