If Marlene Herbert were to discontinue place mats, he would miss $270,000 that will go toward Mendel paper company fixed cost. The company currently has a plant overhead that is estimated at $420,000 for the quarter. In addition to the fixed plant overhead, the plant incurs fixed selling and administrative expenses per quarter of $118,000. This draws the company to a total fixed cost of $538,000. If Marlene Herbert were to discontinue the second highest contributor to the fixed cost, he would need to increase the volume of computer paper and lower material cost to help pull the contribution margin of the lowest product up to help support the lost of a whole product line.
Task 1: Consider the following table of costs for the Winsome Widget Factory, which operates in a perfectly competitive market. The market price faced by this firm is $6.00 per widget.
3) Using the budget Data, what was the total expected cost per unit if all manufacturing and shipping overhead (both variable and fixed) were allocate to planned production? What was the actual cost per unit of production and shipping?
As an example, if fixed costs are $100, price per unit is $10, and variable costs per unit are $6, then the break-even quantity is 25 ($100 ÷ [$10 − $6] = $100 ÷$4). When 25 units are produced and sold, each of these units will not only have covered its own marginal (variable) costs, but will have also have contributed enough in total to have covered all associated fixed costs. Beyond these 25 units, all fixed costs have been paid, and each unit contributes to profits by the excess of price over variable costs, or the contribution margin. If demand is estimated to be at least 25 units, then the company will not experience a loss. Profits will grow with each unit demanded above this 25-unit break-even level.
It is common to business manager in a business unit to adjust different variables (fixed cost, variable cost and price strategy) to maximize the bottom-line or top-line to either maximize profit or minimize the operation cost. Provided the data as below,
Because Mr. Will Bury currently operates his business out of his garage he presently has fixed costs that include a portion of his mortgage and utilities. His variable costs are royalty fees for copyrighted book titles, labor, and the materials used to convert the text and place them in a digital and audio format. In order or Mr. Will Bury to continue to improve his new technology he will need to hire additional labor to run the conversion process and help him in researching and securing copyrighted material appropriate for conversion. This will then allow Mr. Will Bury to increase his production and revenue; however, his variable costs will also increase. This will increase Mr. Will Bury’s total cost and will factor into the price he then sets for his product. When determining the cost per unit, Mr. Will Bury will have to add up all variable costs and divide by the number of units sold.
Total variable and fixed costs are compared with sales revenue in order to determine the level of sales volume, sales value or production at which the business makes neither a profit nor a loss (the "break-even point").
The first scenario will analyze a pizza company. William, owner, is trying to increase outputs while minimizing their costs. It has been determined that four ovens cost the company $1,000. In addition, he has supplied the following