Question

X Company sells one product. The following are the accountant's price and cost estimates for 2020:

Selling price			$17.76
Direct materials			4.07
Direct labor [all variable]			2.54
Variable overhead			2.04
Variable selling and administration			1.70
Fixed overhead			$12,400
Fixed selling and administration			10,700

Unit sales in 2019 were 5,400; unit sales in 2020 are expected to be 5,800.

The accountant is uncertain about her $2.04 variable overhead estimate. What must variable overhead be in 2020 in order for X Company to breakeven (rounded to two decimal places)?

Answer 1

Required contribution margin per unit in Year-2020:
Fixed overheads				12400
Add: Fixed Selling and administration expense	10700
Total Fixed cost				23100
Divide: Expected units sold			5800
Contribution margin per unit required		3.98
Selling price per unit				17.76
Less: Required contribution margin per unit		3.98
Target Variable cost per unit			13.78
Less: Available Variable cost per unit
Material cost per unit			-4.07
labour cost per unit				-2.54
Variable Selling and admin oh			-1.7
Variable Overheads per unit in Year -2020		5.47
Answer is $ 5.47 per unit