Reference no: EM132856617
Penny Ltd manufactures Alpha and the following are the budgeted information for the year 2022:
Selling price per unit : $80
Sales commission: 3.75% of the selling price.
Cost per unit:
Direct material $10
Direct labour 20
Variable factory overheads 12
- The total budgeted fixed factory overhead costs are $1,067,500 while the total budgeted fixed selling and administration costs are $732,550 for the year 2022. The company charges fixed factory overhead costs to the product using an overhead application rate based on total direct labour costs. The budgeted annual sales volume is 70,000 units.
Required:
Problem a) Calculate the fixed factory overhead application rate.
Problem b) Calculate the unit product (manufacturing) cost of Alpha.
Problem c) Calculate the unit contribution margin and contribution margin ratio (CM ratio).
Problem d) Calculate the break-even point in units and in sales dollars.
Problem e) Calculate the budgeted profit of the company when the company produces and sells 70,000 units of Alpha.
Problem f) What is the margin of safety in units?
Problem g) Calculate the number of units to be sold to achieve $1,400,000 profits (ignore tax).
Problem h) The marketing director proposed to increase the advertising budget by $100,000 as he expects this strategy would increase the sales volume (units) by 5%. Should the company go ahead with the plan? Support your answer and include in your answer the revised break-even point.
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