During a Skype session with Tom and Tony, you mention that yourcurrent cost model in accounting is break-even analysis. They arenot following your explanation, but they say they will swing bywith some cookies for a discussion. More cookies! This is payingoff, except for those extra pounds.
Selling price to Juicy Cookies at $10 per tin. The cost is $8per tin, which includes $6 of direct material and $1.50 of directlabor. Annual manufacturing overhead is estimated at $100,000 forthe expected sales of 200,000 tins. Operating expenses areprojected to be $80,000 annually.
After looking over the costs for manufacturing overhead andoperating expenses, you approximate that 85% of manufacturingoverhead and 20% of operating expenses are variable costs.
1. What is the TOTAL fixed cost?
2. What is the TOTAL variable cost?
3. What is the contribution margin per UNIT? (Do notround.)
4. How many units are necessary to reach break-even?(Always round up to the next unit for break-even, since youcannot sell a partial unit.)
5. Tony is concerned that they will not be able to sell200,000 tins of cookies. Given 200,000 tins as their expected saleslevel, what is the decrease of total sales dollars that they endurebefore they incur a net loss?