Greek Manufacturing Company produces and sells a line of product that are sold usually all year round. The company has a maximum production capacity of 100,000 units per year. Operating at normal capacity, the business earned Operating Income of $600,000 in 2020. The following cost data has been prepared for the year ended December 31, 2020. Selling price per unit……………………………………… $50.00 Production Costs: Direct Materials …………………………………. $10.00 Direct Labour ……………………………………. $8.00 Variable Manufacturing Overhead ……………. $7.00 Fixed Manufacturing Overhead…………....................... $450,000 Fixed Selling & Administrative Expenses……………… $300,000 Variable selling expense per unit ………………………. $10.00 Show ALL supporting workings where necessary and state any assumption(s) made. Required: a) Using the equation method, calculate the normal capacity of the business. b) Calculate: i) the variable production cost per unit ii) the total production cost per unit iii) The total variable cost per unit iv) Total Fixed Costs c) Calculate Greek’s break-even point in units and in sales dollars. d) Assuming sales equal to the normal capacity calculated in a) above, prepare a contribution margin income statement for the year ended December 31, 2020, detailing the components of total variable costs and total fixed costs, and clearly showing contribution and net income. e) The recession in the economy in 2021 is expected to result in a reduction of the number of units sold. Assuming that Greek is operating at normal capacity, by how much can sales decline in units and sales dollars in 2021 without the company making a loss?
Greek Manufacturing Company produces and sells a line of product that are sold usually all year round. The
company has a maximum production capacity of 100,000 units per year. Operating at normal capacity, the
business earned Operating Income of $600,000 in 2020. The following cost data has been prepared for the
year ended December 31, 2020.
Selling price per unit……………………………………… $50.00
Production Costs:
Direct Materials …………………………………. $10.00
Direct Labour ……………………………………. $8.00
Variable Manufacturing Overhead ……………. $7.00
Fixed Manufacturing Overhead…………....................... $450,000
Fixed Selling & Administrative Expenses……………… $300,000
Variable selling expense per unit ………………………. $10.00
Show ALL supporting workings where necessary and state any assumption(s) made.
Required:
a) Using the equation method, calculate the normal capacity of the business.
b) Calculate:
i) the variable production cost per unit
ii) the total production cost per unit
iii) The total variable cost per unit
iv) Total Fixed Costs
c) Calculate Greek’s break-even point in units and in sales dollars.
d) Assuming sales equal to the normal capacity calculated in a) above, prepare a contribution margin income statement for the year ended December 31, 2020, detailing the components of total variable costs and total fixed costs, and clearly showing contribution and net income.
e) The recession in the economy in 2021 is expected to result in a reduction of the number of units sold. Assuming that Greek is operating at normal capacity, by how much can sales decline in units and sales dollars in 2021 without the company making a loss?
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