(1) Dodge Industries incurs the following costs during the current year: Depreciation of machinery $15,000 Direct labor....
Question:
(1) Dodge Industries incurs the following costs during the current year:
Depreciation of machinery | $15,000 |
Direct labor. | 6,000 |
Direct materials | 4,000 |
Executive salaries | 20,000 |
Insurance | 2,000 |
Rent on building | 8,000 |
Sales commissions | 10,000 |
Vehicle lease cost | 5,000 |
Sales for the year were $80,000 and Dodge Industries determined that only the direct production costs (prime costs) and sales commissions are to be classified as variable costs; all other costs are classified as fixed costs. Dodge sold 400 units.
(a) Calculate the unit contribution margin and the contribution margin ratio for Dodge
Industries.
(b) Dodge Industries is considering plans that would increase the contribution margin ratio for next year. Should it pursue these plans? Explain.
(2)Southwestern College is planning to hold a fund raising banquet at one of the local country clubs. It has two options for the banquet:
OPTION one: Crestview Country Club
a. Fixed rental cost of $1,000
b. $12 per person for food
OPTION two: Tallgrass Country Club
a. Fixed rental cost of $3,000
b. $8.00 per person for food
Southwestern College has budgeted $1,800 for administrative and marketing expenses. It plans to hire a band which will cost another $800. Tickets are expected to be $30 per person. Local business supporters will donate any other items required for the event.
1) Which option has the lowest breakeven point?
2) Which option provides the greatest operating income if 600 people attend?
3) Which option provides the greatest degree of operating leverage if 600 people attend?
Expert Answer:
Answer a To calculate the unit contribution margin and contribution margin ratio for Dodge Industries we first need to determine the total variable costs and total fixed costs Total variable costs Dir... View the full answer
