Question

Tempo Company's fixed budget (based on sales of 12,000 units) for the first quarter reveals the following.

	Fixed Budget
Sales (12,000 units × $211 per unit)						$	2,532,000
Cost of goods sold
Direct materials		$	300,000
Direct labor			528,000
Production supplies			324,000
Plant manager salary			100,000				1,252,000
Gross profit							1,280,000
Selling expenses
Sales commissions			108,000
Packaging			168,000
Advertising			100,000				376,000
Administrative expenses
Administrative salaries			150,000
Depreciation—office equip.			120,000
Insurance			90,000
Office rent			100,000				460,000
Income from operations						$	444,000

(1) Compute the total variable cost per unit.
(2) Compute the total fixed costs.
(3) Compute the income from operations for sales volume of 10,000 units.
(4) Compute the income from operations for sales volume of 14,000 unit

Answer 1

Sales price per unit	211
Variable costs:
Direct materials	25	=300000/12000
Direct labor	44	=528000/12000
Production supplies	27	=324000/12000
Sales commissions	9	=108000/12000
Packaging	14	=168000/12000
Total variable costs per unit	119
Contribution margin per unit	92
Fixed costs:
Plant manager salary	100,000
Advertising	100,000
Administrative salaries	150,000
Depreciation—office equip.	120,000
Insurance	90,000
Office rent	100,000
Total fixed costs	660,000
1
Total variable cost per unit	119
2
Total fixed costs	660000
3
Income from operations for 10,000 units	260000	=(10000*92)-660000
4
Income from operations for 14,000 units	628000	=(14000*92)-660000