Question

Answer all these questions with the right answer letter next to each question number

47-Jasmine Inc. sells a product for $66 per unit. Variable costs per unit are $34, and monthly fixed costs are $275,200.

a. What is the break-even point in units?

b. What unit sales would be required to earn a target profit of $153,600?

c. Assume they achieve the level of sales required in part b, what is the margin of safety in sales dollars?

48-Marcy has received a special order for 2,000 units of its product at a special price of $60. The product normally sells for $80 and has the following manufacturing costs:

	Per unit
Direct materials		$	24
Direct labor			16
Variable manufacturing overhead			12
Fixed manufacturing overhead			20
Unit cost		$	72

Assume that Marcy has sufficient capacity to fill the order without harming normal production and sales and all fixed overhead is unavoidable.

a. If Marcy accepts the order, what effect will the order have on the company’s short-term profit?

b. What minimum price should Marcy charge to achieve a $20,000 incremental profit?

c. Now assume Marcy is currently operating at full capacity and cannot fill the order without harming normal production and sales. If Marcy accepts the order, what effect will the order have on the company’s short-term profit?

Answer 1

47

a. Contribution margin per unit = Selling price per unit - Variable costs per unit

= $66 - $34

= $32

Break-even point in units = Fixed costs / Contribution margin per unit

= $275,200 / $32

= 8,600 units

b. Unit sales required = (Fixed costs + Desired profit) / Contribution margin per unit

= ($275,200 + $153,600) / $32

= 13,400 units

c. Margin of safety in dollars = Sales - Break even sales

= (13,400 * 66) - (8,600 * $66)

= $316,800

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48.

a. Relevant costs per unit= Direct materials + Direct labor + Variable manufacturing overhead

= $24 + $16 + $12

= $52

increase in profit = ($60 - $52) * 2,000

= $16,000

b. Profit per unit = $20,000 / 2,000

= $10

Minimum selling price = Profit per unit + Relevant costs per unit

= $10 + $52

= $62

c. Decrease in profit = ($80 - $60) * 2,000

= $40,000