ABC, Inc. is a newly organized manufacturing business this year.

The following company's costs and expenses are:

Sales price per unit

$50

Manufacturing costs:

Fixed Costs

Variable Costs

Direct materials

$8

Direct labor

7

Variable Manufacturing overhead

4

Fixed Manufacturing overhead

$116,000

Period expenses:

Variable Selling and administrative expenses

3

Fixed Selling and Administrative expenses

24,000

Totals

$140,000

$22

Units produced

5,800

units

Units sold

5,700

units

Required:

Use the information in the DATA field above using cell referencing to answer the following requirements.

1. Calculate the breakeven point in units. Reference page 271.

2. Calculate the breakeven point in sales dollars.

3. Calculate the safety margin. What does the margin of safety mean? Reference page 277.

understand the multiplier impact of changes in sales volume that occurs based on DOL.

4. What if the direct labor cost per unit increases from $7 a unit to $9, what will be the new breakeven in units? Explain why it changed.

You should only have to change the direct labor in the data area and actually all your answers should be updated. Please put the direct labor cost back to the original number once you have answered the question?

5. What if the manufacturing overhead cost decreases from 116,000 to 110,000, what will be the new breakeven in units? Explain why it changed.

You should only have to change the fixed MOH in the data area and actually all your answers should be updated. Please put the fixed MOH cost back to the original number once you have answered the question?

Solution:

1.

Break even in units

Units

2.

Break even in sales $

3.

On page 277 I realize the author uses budgeted sales revenue in the margin of safety calculation, but if you are

Safety Margin

given the actual sales revenue you can replace budgeted sales with actual sales, which you should do for #8.

What does the margin of safety mean? Be very explicit in your answer, so I know you understand this concept and the importance of it to managers.

4. What if the direct labor cost per unit increases from $7 a unit to $9, what will be the new breakeven in units? Explain why it changed.

You should only have to change the direct labor in the data area and actually all your answers should be updated. Please put the direct labor cost back to the original number once you have answered the question?

5. What if the manufacturing overhead cost decreases from 116,000 to 110,000, what will be the new breakeven in units? Explain why it changed.

You should only have to change the fixed MOH in the data area and actually all your answers should be updated. Please put the fixed MOH cost back to the original number once you have answered the question?