Assume that you are part of the accounting team for Strunk Computing. The compan
ID: 2503946 • 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.
APPLY THE CONCEPTS: Effect of Changes to Sales Price, Variable Costs and Fixed Costs
Now consider each of the following scenarios for Strunk Computing. Calculate the contribution margin (CM) per unit, rounded to nearest dollar, and the new break-even point in units, rounded to the nearest whole unit, for each scenario separately.
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
SCENARIO-1:-
DIRECT MATERIALS INCREASE BY $ 1 PER UNIT
THEREFORE,NEW VARIABLE COST PER UNIT = 16.99+1
=$17.99 PER UNIT
NEW CONTRIBUTION MARGIN P.U. = SALES PRICE PER UNIT