Question

Scent Fragrance Company manufactures and sells several ranges of perfumes. The Average revenue and cost of...


Scent Fragrance Company manufactures and sells several ranges of perfumes. The Average revenue and cost of sales are as follows:


Selling price per unit $20.00


Variable costs per unit:

Direct materials $4.00
Direct manufacturing labor $1.60
Manufacturing overhead $0.40
Selling costs $2.00
Annual fixed costs $96,000

Required:

a) Calculate the contribution margin per unit.
b) Calculate the number of units Scent Fragrance Company must sell each year to break even.
c) Calculate the number of units Scent Fragrance Company must sell to yield a profit of $144,000.

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Homework Answers

Answer #1

a)

Selling price per unit $ 20.00
Less: Variable costs
Direct material $ (4.00)
Direct manufacturing labor $ (1.60)
Manufacturing overhead $ (0.40)
Selling cost $ (2.00)
Contribution margin $ 12.00

b)

Break even point in units = Fixed costs / Contribution margin per unit
Break even point in units = $96,000 / $12
Break even point in units = 8,000 Units

c)

Net income = Sales - variable costs - Fixed costs

Assume number of units as 'y', then

$144,000 = $20y - ($4+$1.6+$0.4+$2)y - $96,000
$144,000 + $96,000 = $20y - $8y
$240,000 = $12y
y = $240,000 / 12
y = 20,000 units
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