Reference no: EM132618833
Question - Calabria Gourmet Meats Ltd is a popular producer of Italian sausages in the inner west of Sydney.
The company's accountant has gathered the following information:
Depreciation on buildings and equipment is $19,000 per month.
The meat for the sausages costs $1.10 per kilogram of sausages.
Wages for production employees cost $0.70 per kilogram of sausages.
The factory supervisor's salaries total $10,000 per month.
Electricity costs incurred are $4,000 per month to be connected plus usage charges of $0.20 per kilogram of sausages.
Required -
a. Explain the difference between fixed and variable costs. As part of this explanation, include the costs above as examples of either fixed or variable costs.
b. Determine the total monthly fixed costs and the total variable cost per unit, then assume the company applies a cost-based pricing model to charge prices to customers, adding a mark-up of 75% on variable cost. What price should the company charge customers per unit, showing all calculations.
c. At the selling price you determined in part b, workout your Breakeven point for a month, in units and Sales Revenue dollars, showing all calculations.
d. Assume you require a monthly profit of $30,000, calculate how many units you must sell to achieve this, showing all calculations.
e. Define and then calculate the 'Margin of Safety', in both units and dollars, assuming you sell 40,000 units. Ensure you include all calculations.