Premium Essay

Managerial Account

In: Business and Management

Submitted By berenid
Words 329
Pages 2
- $ total
Direct Materials 10.00
Direct labor 4.50
Variable Manufacturing Overhead 2.30
Fixed Manufacturing Overhead 5.00 300,000
Variable Selling Expenses 1.20
Fixed Selling Expense 3.50 210,000
Total Cost Per Unit 26.50

P= $ 32
VC= $ 18
CM=P-VC
CM=32-18= 14
TFC= 510,000
Q= 60,000
Q= TFC+I 60,000 = 510,000+I = I= ([14 X 60.000]-510.000) = $ 330,000 CM 14 The firms profit is $ 330,000 in current production.

New Situation
The firm will produce 75.000 units ( 60.000 X 1,25=75.000) $ Total $
Direct Materials 10.00
Direct laBor 4.50
Variable Manufacturing Overhead 2.30
Fixed Manufacturing Overhead (300.000 / 75.000=4,00) 4.00 300,000
Variable Selling Expenses 1.20
Fixed Selling Expense (210.000+80.000)/75.000 3.87 290,000
Total Cost Per Unit 25.87

If the firm produce 75.000 units, total cost per unit become $ 25.87. It is clear that this cost is less than both first total cost per unit and product selling price. For this reason, If the firm can sell 75.000 units, the second option is more beneficial for the company.

On the other hand, we know that this increase gives rise to $ 80,000 fixed selling expenses.
We must calculate when the second option become more beneficial
P= $ 32
VC= $ 18
CM=P-VC
CM=32-18= 14
TFC= 590,000
I= 330,000
In the first option the firm gain $330,000. In the second case, to obtain same profit the firm must at least 65.714 units.

Q= TFC+I = 590,000+330,000 = 65.714 units CM 14
In the second situation if the firm produces and sells 65.714 Daks, it gain equal operating income with first situation ( 60,000 units)

If the firm produces and sells more than 65.714 Daks second option is better than first...

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