Question 7

(a) North Company sells several products. Information of average revenue and costs are as follows:

Selling price per unit $20.00

Variable costs per unit:

Direct materials $4.00

Direct manufacturing labour $1.60

Manufacturing overhead $0.40

Selling costs $2.00

Annual fixed costs $96,000

1. Calculate the contribution margin per unit.

2. Calculate the number of units Norths must sell each year to break even.

3. Calculate the number of units Norths must sell to yield a profit of $144,000.

(b) The marginal costing operating statement of AAT Limited for the year just ended is as follows:

$ Sales (5,000 units at $4 per unit) 20,000

Variable costs (direct materials, direct labour, etc.) 8,000

Contribution 12,000

Fixed cost 7,500

Profit 4,500

Required:

(a) Calculate the break-even point.

(b) Calculate the margin of safety.

(c) The sales level to achieve a target profit of $22,500.

(d) The selling price to be charged to earn a profit of $22,500 on sales of 10,000 units.

(e) The additional sales volume required to meet $5,700 additional fixed promotion expenses to maintain the original profit.