Question

Finch Manufacturing Company reported the following data regarding a product it manufactures and sells. The sales price is $43. Variable costs Manufacturing $ 17 per unit Selling 7 per unit Fixed costs Manufacturing $ 160,000 per year Selling and administrative $ 81,300 per year Required Use the per-unit contribution margin approach to determine the break-even point in units and dollars. Use the per-unit contribution margin approach to determine the level of sales in units and dollars required to obtain a profit of $121,600. Suppose that variable selling costs could be eliminated by employing a salaried sales force. If the company could sell 21,500 units, how much could it pay in salaries for salespeople and still have a profit of $121,600? (Hint: Use the equation method.)

Answer 1

a) Break even in units= 12, 684 units; Break even in dollars= 547,727.27

b) Break even in units= 19,052 units; Break even in dollars= $822,727.27

c) The salaries to pay to get a profit of $121,600 is $196,400

Step-by-step explanation:

Solution to A) Compute the Contribution Margin per unit and use it to calculate the break -even point

1. Per unit Contribution Margin is calculated as the

Price- Variable Cost (Manufacturing and Selling)

=$43- $17-$7

= $19

Based on this calculation, then calculate the Contribution Margin Ratio

= Contribution/Sales

= $19/$43 = 0.44 or 44%

2. Next step, calculate total fixed cost as follows:

Total fixed cost = Manufacturing + Administrative Fixed costs)

= $160,000 + $81,000

= $241,000

Now, calculate the Break Even in Units =

The total fixed cost/ Contribution Margin

= $241,000/$19

= 12, 684 units

Now, calculate the Break even in dollars=

Total fixed cost/ Contribution margin ratio

= $241,000/0.44

= $547,727.27

Solution B: Using the Contribution per unit Contribution Margin, determine Sales level in Units and dollars required for a profit of $121,600

What is the desired profit $121,600

The total fixed cost $241,000

Total amount is $362,000

Therefore, calculate the Break Even in Units using the new total fixed cost

= $362,000/$19= 19,052 units

Also, Calculate the Break even in dollars

= $362,000/ 0.44= $822,727.27

Solution C: Calculate salaries for salespeople to sell 21,500 units and make a profit of $121,600

We can start with an equation assumption as follows:

Let the required fixed cost be as follows:

The total fixed cost in solution 1 + X( the additional fixed cost required).

Therefore, the target profit

= Target Profit= Units to sell x (price- variable manufacturing cost) - the total fixed cost

= $121,600= 21,500 units x (43-17) - $241,000+ x

= $121,600= (21,500 x 26)- (241,000+ x)

=$121,600= 559,000- 241,000 -x

x= 559,000-241,000-121,600

x= $196,400

The salaries to pay to get a profit of $121,600 is $196,400