Reference no: EM132707824
Question - Classic Cabinets has a factory that produces custom kitchen cabinets. It has multiple product lines
Materials and labor for the cabinets are determined by each job. To simplify the assignment, we will assume the following average costs.
The materials include $1,000for the wood and other materials of $200. Both items listed are on a per job basis. It requires 20 hours of labor on average for a custom kitchen. The hourly rate is $10. The sales price will be set at a markup of 65%.
The company estimates that it will have 16,000 direct labor hours in total for the kitchen cabinets.
It assumes 800units are sold on average per year. A breakdown of estimated yearly costs related to the kitchen cabinets follows:
Salaries-office & administrative $520,000
Salaries for factory personal $220,000
Office Rent $125,000
Factory Rent $20,000
Utilities and Misc office expenses (based on units sold) $20,000
Travel (based on units sold) $24,000
Insurance -office $12,000
Depreciation -office equipment $40,000
Depreciation for factory equipment $70,000
Advertising $20,000
Sales commissions (based on units sold) $45,000
Factory Property taxes $10,000
Maintenance for factory equipment $80,000
Required - What is the Contribution Margin (CM) in total and per unit dollars, and CM % for the sale of 800 kitchen cabinets? Explain the importance of CM and how it can be used by companies to predict future income. Create some examples with numbers to show how it can be used.