Assume that you are part of the accounting team for Strunk Computing. The compan
ID: 2503945 • Letter: A
Question
Assume that you are part of the accounting team for Strunk Computing. The company currently expects to sell 618 units for total revenue of $21,000 each month. Strunk Computing estimates direct materials costs of $3,150, direct labor costs of $4,200, variable overhead costs of $2,100, and variable selling and administrative costs of $1,050. Fixed costs of $8,500 are also expected, which includes fixed overhead and selling and administrative costs. Using this information, complete the contribution margin income statement shown below.
Review the formula and structure of this statement from the first two steps above, and apply these values.
Recall that direct labor and direct materials are included with variable costs.
Assume that you are part of the accounting team for Strunk Computing. The company currently expects to sell 618 units for total revenue of $21,000 each month. Strunk Computing estimates direct materials costs of $3,150, direct labor costs of $4,200, variable overhead costs of $2,100, and variable selling and administrative costs of $1,050. Fixed costs of $8,500 are also expected, which includes fixed overhead and selling and administrative costs. Using this information, complete the contribution margin income statement shown below.
Strunk Computing Contribution Margin Income Statement Sales $ $ Operating income $
Explanation / Answer
SALES PRICE PER UNIT = 21000/618
= $33.98 PER UNIT
VARIABLE COST PER UNIT = (DIRECT MATERIAL+DIRECT LABOR COST+VARIABLE OVERHEAD COST+VARIABLE SELLING & ADMINISTRATIVE COST]/618 UNITS
=[3150+4200+2100+1050]/618
= 16.99 PER UNIT
THEREFORE CONTRIBUTION PER UNIT = SALES PRICE PER UNIT - VARIABLE COST PER UNIT
= 33.98-16.99
= 16.99 PER UNIT
FIXED COST = 8500
BREAKEVEN POINT IN UNITS = FIXED COST/CONTRIBUTION P.U.
= 8500/16.99
= 500 . 29 UNITS
= i.e. 500 UNITS APPROX.