Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage Belmain Co. expects to maintain the same inventories at the end of 20Y7 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows: Estimated Fixed Cost Estimated Variable Cost (per unit sold) Production costs: Direct materials $13 Direct labor 9 Factory overhead $613,800 6 Selling expenses: Sales salaries and commissions 127,600 3 Advertising 43,200 Travel 9,600 Miscellaneous selling expense 10,500 3 Administrative expenses: Office and officers' salaries 124,700 Supplies 15,300 1 Miscellaneous administrative expense 14,340 1 Total $959,040 $36 It is expected that 10,360 units will be sold at a price of $180 a unit. Maximum sales within the relevant range are 13,000 units.
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First, we need to calculate the total fixed costs. Adding up all the estimated fixed costs, we get $13,800 (Factory overhead) + $27,600 (Sales salaries and commissions) + $43,200 (Advertising) + $9,600 (Travel) + $10,500 (Miscellaneous selling expense) + $124,700 Show more…
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Preliminary marketing and financial analyses of a product provided a selling price of $249 per unit, administrative cost of $400,000, and advertising cost of $600,000. The cost of direct labor, the cost of parts, and the demand for the product are not known with certainty and are considered uncertain inputs. The direct labor cost per unit follows the following probability distribution Direct Labor Cost per Unit Probability $43 0.1 $44 0.2 $45 0.4 $46 0.2 $47 0.1 a) An engineer on the product development team believes that first-year sales for the product will be 20,000 units. Using estimates of $45 per unit for the direct labor cost and $90 per unit for the parts cost, what is the first-year profit using the engineer's sales estimate? b) The financial analyst on the product development team is more conservative, indicating that parts cost may well be $100 per unit. In addition, the analyst suggests that a sales volume of 10,000 units is more realistic. Using the most likely value of $45 per unit for the direct labor cost, what is the first-year profit using the financial analyst's estimates? c) Use the random numbers 0.3753, 0.9218, 0.0336, 0.5145, and 0.7000 to generate five simulated values for the product's direct labor cost per unit.
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1.Fixed cost per unit of output decreases as volume increases.true or false2.A company sells phone cases for $180 per unit, and variable costs are $72 per unit. The company's contribution margin per unit is $108.true or false3.If a company has sales of $2,500 and variable costs of $1,500, then its contribution margin ratio equals 40%.true or false4.A cost-volume-profit (CVP) chart can be used to find the break-even point.true or false5.The relevant range of operations includes extremely high and low levels of production that are unlikely to occur.true or false6.A company expects sales of $680,000 (8,000 units at $85 per unit). If the company's total fixed costs are $350,000 and its variable costs are $35 per unit, its margin of safety in dollars is $85,000.true or false7.A company expects sales of $680,000 (8,000 units at $85 per unit). If the company's total fixed costs are $350,000 and its variable costs are $35 per unit, its break-even point is 10,000 units.true or false8.Contribution margin per unit is the amount by which a product's unit selling price exceeds its variable cost per unit.true or false
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