Answer:
a. The Contribution margin for current year is $ 180,000 and for the projected year is $ 198,000
b. The computation of the fixed costs for the current year would be $ 485,700
c. The break-even point in units is 242,850 and sales dollars for the first year is $2,428,500
Step-by-step explanation:
a. The computation of the contribution margin for the current year and the projected year would be as follows:
Contribution margin Current year Projected year
Sales $ 900,000 990,000
Variable costs$:
Direct materials 16,700 18,370
Direct labor 270,000 297,000
Manufacturing overhead 279,300 307,230
Selling expenses 100,000 110,000
Administrative expenses 54,000 59,400
Total variable costs $ 720,000 792,000
Contribution margin $ 180,000 198,000
b. The computation of the fixed costs for the current year would be as follows:
Fixed cost Current year
Manufacturing overhead 119,700
Selling expenses 150,000
Administrative expenses 216,000
Total fixed costs $ 485,700
c. The break-even point in units and sales dollars for the first year would be as follows:
Break-even point In units = Total fixed costs / Contribution per unit
Contribution per unit = $180,000 / 90000 units = $2 per unit
Break-even point in units = $485,700 / $2 = 242,850
Break-even point $ = Total fixed costs / Contribution margin ratio
Contribution margin ratio = Contribution margin / Sales = $180,000 / $900,000 = 20%
Break-even point = Total fixed costs / Contribution margin ratio = $485,700 / 20% = $2,428,500