ID ezto.mheducation com Assignment 6 Com Assignment 6 Y Provides Cars... I Chegg
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Question
ID ezto.mheducation com Assignment 6 Com Assignment 6 Y Provides Cars... I Chegg.com University of Waterlo0 Question b (o Sa& ExitSubmit value: 10.00 points Problem 8-7 Computing Break-Even and Margin of Safety (LO2 CC6, 8) Draaksh Corporation sells premium quality wine for $120 per bottle, Its direct materials and direct labour costs are $23 and $20 respectively per bottle. It pays its direct labour employees a wage of $26 per hour The company performed a regression analysis using the past 12 months' data and established the following monthly cost equation for manufacturing overhead costs using direct labour hours as the overhead allocation base: y $ 1 55.200 + $23.50x Draaksh believes that the above cost estimates will not substantially change for the next fiscal year. Given the stiff competition in the wine market, Draaksh budgeted an amount of $34,800 per month for sales promotions; additionally, it has decided to offer a sales commission of $6.25 per bottle to its sales personnel. Administrative expenses are expected to be $25,400 per month. Required 1. Compute the expected total variable cost per bottle and the expected contribution margin ratio. Total variable cost n margin ratio 2. Compute the annual break-even sales in units and dollars. Annual breakeven sales in units Annual breakeven sales in dollars 3. Draaksh has budgeted sales of $7.5 million for the next fiscal year. What is the company's margin ofExplanation / Answer
Answer 1
Total Variable cost per bottle
= Direct Material + Direct labour ** + Manufacturing overhead cost + Sales commission
= $23 + $20 + $23.50 + $6.25 = $72.75
Note :Direct labour ** per bottle cost is consider & not the actual amount paid to per employee
Contribution per unit = Selling Price - Variable cost = $120 - $72.75 = $47.25
Contribution Margin ratio = (Contribution per unit / Selling Price ) * 100 = ($47.25 / $120 ) *100 = 39.375 %
Answer 2
Fixed Costs per month = $155,200 + $34,800 + $25,400 = $215,400
Annual break even sales in unit = (Total fixed cost per month / Contribution per unit) * 12 months
= ($215,400 / $47.25) * 12 = 4 ,559 * 12 = 54,708 units
Annual break even sales in dollors = Annual break even sales in unit * selling price per unit
= 54,708 units * $120 = $6,564,960
Answer 3
Margin of safety = Budgeted Sales - Annual break even sales in dollors = $7,500,000 - $6,564,960 = $935,040
Margin of safety as % of budgeted sales = (MOS / Budgeted Sales) * 100= $935,040 / $7,500,000 = 12.47 %