The management of Fresno Processing Company has engaged you to assist in the development of information to be used for management decisions.

The company has the capacity to process 20,000 tons of cottonseed per year. This processing results in several salable products, including oil, meal, hulls, and lint.

A marketing study indicates that the company can sell its output for the coming year at $200 per ton processed.

You have determined the company’s cost structure to be as follows:

 Cost of cottonseed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .,$80 per ton

Processing costs:

Variable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26 per ton

Fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $340,000 per year

Marketing costs (All variable) ………………………………..$44 per ton

Administrative costs (All fixed). . . . . . . . . . . . . . . . . . . . . . . . $300,000 per year

  Instructions

a. Compute ( 1 ) the contribution margin per unit and ( 2 ) the contribution margin ratio per ton of cottonseed processed.

b. Compute the break-even sales volume in tons of cottonseed.

c. Assume that the company’s budget calls for an operating income of $240,000. Compute the sales volume required to reach this profit objective, stated in dollars.

d. Prepare an income statement using contribution margin format if the company budget sale of 10000 units.