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Jay-Zee Company makes an in-car navigation system. Next year, Jay-Zee plans to sell 16,000 units at a price of $320 each. Product costs include: Variable selling expense is a commission of 5 percent of price; fixed selling and administrative expenses total $116,400. Required: 1. Calculate the sales commission per unit sold. Calculate the contribution margin per unit. 2. How many units must Jay-Zee Company sell to break even? Prepare an income statement for the calculated number of units. 3. Calculate the number of units Jay-Zee Company must sell to achieve target operating income (profit) of $333,408. 4. What if the Jay-Zee Company wanted to achieve a target operating income of $322,000? Would the number of units needed increase or decrease compared to your answer in Requirement 3? Compute the number of units needed for the new target operating income.

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

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Chapter
Section
BuyFindarrow_forward

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
Chapter 16, Problem 2CE
Textbook Problem
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Jay-Zee Company makes an in-car navigation system. Next year, Jay-Zee plans to sell 16,000 units at a price of $320 each. Product costs include:

Chapter 16, Problem 2CE, Jay-Zee Company makes an in-car navigation system. Next year, Jay-Zee plans to sell 16,000 units at

Variable selling expense is a commission of 5 percent of price; fixed selling and administrative expenses total $116,400.

Required:

  1. 1. Calculate the sales commission per unit sold. Calculate the contribution margin per unit.
  2. 2. How many units must Jay-Zee Company sell to break even? Prepare an income statement for the calculated number of units.
  3. 3. Calculate the number of units Jay-Zee Company must sell to achieve target operating income (profit) of $333,408.
  4. 4. What if the Jay-Zee Company wanted to achieve a target operating income of $322,000? Would the number of units needed increase or decrease compared to your answer in Requirement 3? Compute the number of units needed for the new target operating income.

1.

To determine

Compute the sales commission per unit sold and the contribution margin per unit.

Explanation of Solution

Compute the sales commission per unit sold:

Sales Commission =Commission rate ×Price=0.05×$320=$16

The sales commission per unit sold is $16.

Contribution Margin: The contribution margin refers to the process or the theory that is used to judge the benefit generated from each unit of the goods produced.

Compute the contribution margin per unit:

Contribution Margin =PriceVariable cost=$320$136=$184

The contribution margin per unit is $184

2.

To determine

Compute the break-even point and draw up the contribution margin based on the break-even point for Company JZ.

3.

To determine

Compute the number of units to be sold to generate an operating income of $333,408 by Company JZ.

4.

To determine

Compute the number of units to be sold to generate an operating income of $322,00 by Company JZ and compare with the number of units computed in Requirement 3.

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Chapter 16 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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