Question

Diehl ”The Dumpling King” Foods produces dumplings for sale to restaurants and gourmet food stores. For March 2014 it has budgeted to produce 78,000 dumplings, which sell for $2.00 each. The purchase and usage of flour (the only direct material) for March 2014 is expected to be 13,600 pounds, at $1.55 per pound. Direct labor is paid at the rate of $9.00 per hour. It requires an employee 5 minutes of direct labor to prepare and package each dumpling. It also requires packaging of $0.22 per dumpling. Fixed costs of $30,000 per month represent factory overhead and indirect labor. a. Compute the breakeven number of units and revenue. BREAKEVEN UNITS ____________ BREAKEVEN REVENUE ____________ b. What is the operating income implied by the above budget?

Answer 1

a)

Variable Cost :-

Particulars	Amount($)
Direct Materials (13600*$1.55)	21080
Direct Labor (78000*5/60)*$9	58500
Packaging (78000*$0.22)	17160
Total Variable Cost	96740

Contribution Margin (%) = ((Sales - Variable Cost)/Sales)*100

= (((78000*$2) - $96740)/(78000*$2))*100

= (($156000 - $96740) / $156000) * 100

= ($59260 / $156000) *100

= 37.987%

Break Even in Sales = Fixed Cost / Contribution Margin (%)

= $30000 / 37.987%

= $78974

Break Even in Units = Fixed Cost / Contribution Per Unit

= $30000 / $0.7597

= 39489 Dumpling

Contribution Per Unit = Contribution / No. of sale of Dumpling

= (($156000 - $96740) / 78000

= $59260 / 78000

= $0.7597

b) Operating Income :-

= Contribution - Fixed Cost

= $59260 - $30000

= $29260