1. A Company  only makes one product that it sells for $60 per unit. Fixed manufacturing costs (i.e. fixed overhead) per year are $37,600 and fixed expenses per year are $68,000. Variable manufacturing costs include $24 per unit for direct materials, $15 per unit for direct labor, $5 per unit for variable overhead. Variable expenses include $4 per unit sold. Company sold 12,000 units of this product last year. Prepare a Contribution-Margin-Format Income Statement for the year.

2. Use the same information in Question 1 . . . Management is considering making a change that will save the company $16,000 per year in fixed expenses (so the “new” fixed expenses per year will be $52,000) AND increase variable expense per unit by $3 per unit sold (so the “new” variable expenses per unit will be $7 per unit sold).

 Assuming Company can still sell 12,000 units per year, should it make the change? (HINT: How much would the “new” income be? Would that be higher or lower than the income from your Income Statement in Question #1?)

Answer rating: 100% (QA)

1 ContributionMarginFormat Income Statement for the Year Sales revenue 12000 units x 60 per unit 720... View the full answer