Draaksh Corporation sells premium wine for $90 per bottle. Direct materials and direct labor costs are $17 and $10.00 per bottle, respectively. Direct workers pay their employees $20 per hour.

The company performed a regression analysis using data from the last 12 months and created the following monthly cost equation for production overheads using direct working hours as the overhead allocation base:

y = $152,200 + $20.50 x

Draaksh believes the above cost estimates will not change significantly for the next fiscal year. Given the fierce competition in the wine market, Draaksh has budgeted $33,600 per month for sales promotions; it has also decided to offer sales commissions of US$ 4.75 per bottle to its salespeople. Administrative expenses are expected to be $24,800 per month.

Necessary:

1. Calculate the expected total variable cost per bottle and the expected contribution margin.

 2. Calculate the annual breakeven sales in units and dollars.

3. Draaksh has set a sales budget of $8.3 million for the next fiscal year. What is the company's margin of safety in dollars and as a percentage of budgeted sales?

Answer rating: 100% (QA)

Expected total variable cost per bottle and expected contribution margin Total variable cost per bot... View the full answer