Assume that you are part of the accounting team for Brooks Products. The company currently expects to sell 964 units for total revenue of $21,100 each month. Brooks Products estimates direct materials costs of $3,150, direct labor costs of $4,200, variable overhead costs of $2,100, and variable selling and administrative costs of $1,050. Fixed costs of $6,600 are also expected, which includes fixed overhead and selling and administrative costs. Using this information, complete the contribution margin income statement shown below. Brooks Products Contribution Margin Income Statement Sales $ 21,100 Less: Variable costs 10,500 Contribution margin $ 10,600 Less: Fixed costs 6,600 Operating income $ 4,000 Feedback Review the formula and structure of this statement from the first two steps above, and apply these values. Recall that direct labor and direct materials are included with variable costs. Brooks Products is examining cost behavior patterns. Your recommendation is to first determine the break-even point in units. First, calculate the contribution margin (CM) per unit (rounded to the nearest dollar). $ 11 Next, complete the formula below to determine the break-even units. Total Fixed Costs / Contribution Margin per Unit = Units $ 6,600 / $ 11 = 600 units

APPLY THE CONCEPTS: Effect of Changes to Sales Price, Variable Costs and Fixed Costs

Now consider each of the following scenarios for Brooks Products. Calculate the contribution margin (CM) per unit, rounded to nearest dollar, and the new break-even point in units, rounded to the nearest whole unit, for each scenario separately.

Scenario 1 Brooks has been experiencing quality problems with a materials supplier. Changing suppliers will improve the quality of the product but will cause direct materials costs to increase by $1 per unit. CM per unit: $______ Break-even units: ______ units

Scenario 2 Brooks will dispose of a machine in the factory. The depreciation on that equipment is $500 per month. $CM per unit: $_____ Break-even units:_____units

Scenario 3 After some extensive market research, Brooks has determined that a sales price increase of $2 per unit will not affect the sales volume and will be effective immediately. CM per unit: $_____ Break-even units:____