Case Study 4: Costing and Break-even Analysis

At the end of September 2021, there were 880 units of a product manufactured by Robinson and Sons Limited. The company has a budgeted capacity of 7,000 units and during the month, one unit of the product was sold for $1,500. Production and sales for the month amounted to 6,500 units and 5,800 units respectively. Administrative, selling and production overheads were estimated at $820,000, $780,000, and $910,000 respectively. The following information relating to the product was also extracted from the financial records:

Cost per unit Details $ Direct materials 250 Direct labour 275 Variable overheads 2 45 Total 770

Required:

1. Determine the amount of stock in store at the start of the month. (1 mark)
2. Calculate the full cost per unit of production for September 2021. (1 mark)
3. Prepare profit statement for the month using Marginal Costing. (9 marks)
4. Determine the contribution to sales ratio. (3 marks)
5. Find the break-even point in units and sales revenue. (4 marks)

1. The Jamaican firm produces three other products that are not in their Health Care line. Product A sells for $60; its variable costs are $20. Product B sells for $200; its variable costs are $120. Product C sells for $25; its variable costs are $10. Last year, the firm sold 1000 units of A, 2000 units of B, and 10,000 units of C. The firm has fixed costs of $320,000 per year. Calculate the break-even point of the firm. (7 marks)