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The data below pertain to the forecasts of XYZ Company for the upcoming year. Total Cost...

The data below pertain to the forecasts of XYZ Company for the upcoming year. Total Cost Unit Cost Sales (40,000 units) $1,000,000 $25 Raw materials 160,000 4 Direct labor 280,000 7 Manufacturing overhead: Variable 80,000 2 Fixed 360,000 Selling and general expenses: Variable 120,000 3 Fixed 225,000 ________________________________________ Assuming that XYZ Company sells 80,000 units, what is the maximum that can be paid for an advertising campaign while still breaking even?

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Answer #1

Selling price per unit = 25

variable cost for 40000 units = material + labour + variable manufacturing overhead + variable selling expenses

variable cost for 40000 units = 160000 + 280000+ 80000 + 120000

variable cost for 40000 units= 640000

variable cost per unit = 640000/40000 = 16 per unit

contribution per unit = selling price per unit - variable cost per unit

contribution per unit = 25 - 16 = 9

To break even, ( for 80000 units)

fixed costs = contribution

fixed manufacturing iverhead + fixed selling expense+ advertising cost = 9 x 80000

360000 + 225000 + advertising = 720000

advertising = 7200000 - 585000

advertising = 135000

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