Question

Harris Corp. manufactures a single product. Costs for the year 2001 for output levels of 1000 and 2000 units are as follows:

Units Produced 1000 2000
Direct labor $30,000 $30,000
Direct materials $20,000 $40,000
Overhead:
Variable portion $12,000 $24,000
Fixed portion $36,000 $36,000
Selling & Administrative costs:
Variable portion $5,000 $10,000
Fixed portion $22,000 $22,000

At each level of output, compute the following:
A. Total manufacturing costs
B. Manufacturing costs per unit
C. If sale price is $92, determine the break-even-piont in quantity and doller values
D. Determine the contribution margin in dollar and percentage ? Please show all the answers

Answer 1

Answer on Question #57998 -Management - Other

Harris Corp. manufactures a single product. Costs for the year 2001 for output levels of 1000 and 2000 units are as follows:

Units Produced 1000 2000

Direct labor $30,000 $30,000

Direct materials $20,000 $40,000

Overhead:

Variable portion $12,000 $24,000

Fixed portion $36,000 $36,000

Selling & Administrative costs:

Variable portion $5,000 $10,000

Fixed portion $22,000 $22,000

At each level of output, compute the following:

A. Total manufacturing costs

B. Manufacturing costs per unit

C. If sale price is $92, determine the break-even-point in quantity and dollar values

D. Determine the contribution margin in dollar and percentage? Please show all the answers

Solution

A.

$$\begin{array}{l} TC_{1000} = 30,000 + 20,000 + 12,000 + 36,000 + 5,000 + 22,000 \\ = \$125,000 \\ \end{array}$$ $$\begin{array}{l} TC_{2000} = 30,000 + 40,000 + 24,000 + 36,000 + 10,000 + 22,000 \\ = \$162,000 \\ \end{array}$$

B.

$$\begin{array}{l} ATC_{1000} = \frac{\$125,000}{1000} = \$125 \\ ATC_{2000} = \frac{\$162,000}{2000} = \$81 \\ \end{array}$$

C.

To determine the break-even-point we use the formula:

$$Q = \frac{FC}{P - AVC}$$

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$$Q_{1000} = \frac{36,000 + 22,000}{92 - \frac{30,000 + 20,000 + 12,000 + 5,000}{1000}} = \frac{58,000}{92 - 67} = 2320 \text{ units or } 2320 \times \$92 = \$213,440$$ $$Q_{2000} = \frac{36,000 + 22,000}{92 - (30,000 + 40,000 + 24,000 + 10,000) / 2000} = \frac{58,000}{92 - 52} = 1450 \text{ units or } 1450 \times \$92 = \$133,400$$

D. The contribution margin is calculated as:

$$\mathrm{MR} = \mathrm{TR} - \mathrm{VC}$$ $$\mathrm{MR}_{1000} = \mathrm{TR} - \mathrm{VC} = 92,000 - 67,000 = \$25,000 \text{ or } \frac{\$25,000}{92,000} \times 100\% = 27.17\%$$ $$\mathrm{MR}_{2000} = \mathrm{TR} - \mathrm{VC} = 184,000 - 104,000 = \$80,000 \text{ or } \frac{\$80,000}{184,000} \times 100\% = 43.48\%$$

Answer

a. \$125,000; \$162,000

b. \$125; \$81

c. 2320 units or \$213,440; 1450 units or \$133,400

d. \$25,000 or 27.17%; \$80,000 or 43.48%

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