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 × $203 per unit)						$	2,436,000
Cost of goods sold
Direct materials		$	300,000
Direct labor			504,000
Production supplies			324,000
Plant manager salary			100,000				1,228,000
Gross profit							1,208,000
Selling expenses
Sales commissions			108,000
Packaging			180,000
Advertising			100,000				388,000
Administrative expenses
Administrative salaries			150,000
Depreciation—office equip.			120,000
Insurance			90,000
Office rent			100,000				460,000
Income from operations						$	360,000

(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 units.

Answer 1

Sales price per unit	203
Variable costs per unit:
Direct materials	25	=300000/12000
Direct labor	42	=504000/12000
Production supplies	27	=324000/12000
Sales commissions	9	=108000/12000
Packaging	15	=180000/12000
Total variable costs per unit	118
Contribution margin per unit	85
Fixed costs:
Plant manager salary	100000
Advertising	100000
Administrative salaries	150000
Depreciation—office equip.	120000
Insurance	90000
Office rent	100000
Total fixed costs	660000
1
Total variable cost per unit	118
2
Total fixed costs	660000
3
Income from operations at 10,000 units	190000	=(10000*85)-660000
4
Income from operations at 14,000 units	530000	=(14000*85)-660000