Newton Company manufactures and sells one product. The company assembled the following projections for its first year of operations: Variable costs per unit: Manufacturing: Direct materials $ 20 Direct labor $ 16 Variable manufacturing overhead $ 4 Variable selling and administrative $ 2 Fixed costs per year: Fixed manufacturing overhead $ 450,000 Fixed selling and administrative expenses $ 70,000 During its first year of operations Newton expects to produce 25,000 units and sell 20,000 units. The budgeted selling price of the company’s only product is $66 per unit. 7. What is Newton’s break-even point in unit sales? What is its break-even point in dollar sales? 8. What is the company’s projected margin of safety in its first year of operations?
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Newton Company manufactures and sells one product. The company assembled the following projections for its first year of operations:
| Variable costs per unit: | ||
| Manufacturing: | ||
| Direct materials | $ | 20 |
| Direct labor | $ | 16 |
| Variable manufacturing |
$ | 4 |
| Variable selling and administrative | $ | 2 |
| Fixed costs per year: | ||
| Fixed manufacturing overhead | $ | 450,000 |
| Fixed selling and administrative expenses | $ | 70,000 |
During its first year of operations Newton expects to produce 25,000 units and sell 20,000 units. The budgeted selling price of the company’s only product is $66 per unit.
7. What is Newton’s break-even point in unit sales? What is its break-even point in dollar sales?
8. What is the company’s projected margin of safety in its first year of operations?
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