Buggs-Off Corporation produces and sells a line of mosquito repellants that are sold usually all year round The product sells at $100 per box. The following cost data has been prepared for its estimated upper and lowe limits of activity for the year ended December 31, 2020. Lower Limit Upper Limit Production (# of boxes) 4,000 6,000 Production Costs: Direct Materials $60,000 $90,000 Direct Labour 80,000 120,000 Overhead: Indirect Materials.... 25,000 37,500 Indirect Labour 40,000 50,000 Depreciation ... 20,000 20,000 Selling & Administrative Expenses: Sales Salaries ... 50,000 65,000 Office Salaries 30,000 30,000 Advertising ... Other ... 45,000 45,000 _15,000 20.000 Total $365,000 $477,500 Required: c) Assuming sales of 5,000 units, prepare a contribution margin income statement for the year endec December 31, 2020, detailing the components of total variable costs and total fixed costs, and clearly showing contribution and net income. d) Assuming sales of 5,000 units, calculate Buggs-Off break-even point and margin of safety in units and sales dollars. e) Recompute the break-even point in units, assuming that variable costs increased by 20% and fixed costs are reduced by $50,625. How will this impact the margin of safety ratio?
Buggs-Off Corporation produces and sells a line of mosquito repellants that are sold usually all year round The product sells at $100 per box. The following cost data has been prepared for its estimated upper and lowe limits of activity for the year ended December 31, 2020. Lower Limit Upper Limit Production (# of boxes) 4,000 6,000 Production Costs: Direct Materials $60,000 $90,000 Direct Labour 80,000 120,000 Overhead: Indirect Materials.... 25,000 37,500 Indirect Labour 40,000 50,000 Depreciation ... 20,000 20,000 Selling & Administrative Expenses: Sales Salaries ... 50,000 65,000 Office Salaries 30,000 30,000 Advertising ... Other ... 45,000 45,000 _15,000 20.000 Total $365,000 $477,500 Required: c) Assuming sales of 5,000 units, prepare a contribution margin income statement for the year endec December 31, 2020, detailing the components of total variable costs and total fixed costs, and clearly showing contribution and net income. d) Assuming sales of 5,000 units, calculate Buggs-Off break-even point and margin of safety in units and sales dollars. e) Recompute the break-even point in units, assuming that variable costs increased by 20% and fixed costs are reduced by $50,625. How will this impact the margin of safety ratio?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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