Fixed and Variable Cost Determinations Unit Cost Calculations The projected cost of a lamp is calculated based upon the projected increases or decreases to current costs. The present costs to manufacture one lamp are: Lamp Kit: $16.0000000 per lamp 1 23 4 I See The Light Projected Income Statement For the Period Ending December 31, 20x1 5 6 Sales 25,000 lamps @ $45.00 7 Cost of Goods Sold @ $30.00 8 Gross Profit 9 Selling Expenses: 10 Fixed 11 Variable (Commission per unit) @ $3.00 $ 23,000.00 75,000.00 $ 98,000.00 21 Administrative Expenses: 22 Fixed 23 Variable @ $2.00 $ 42,000.00 50,000.00 92,000.00 24 Total Selling and Administrative Expenses: 25 Net Profit 35 3 4 7 PART 2 8 $ 1,125,000.00 9 750,000.00 10 $ 375,000.00 11 Cost Volume Relationships - Profit Planning Big Al is about to begin work on the budget for 20x2 and they have requested that you prepare an analysis based on the following assumptions. 14 15 16 Note: Remember, that we cannot sell part of a lamp, therefore to find the number of units you have to round up to the next complete unit. Furthuremore, to find the required sales in dollars it may be easier to find the number of units and then multiply by the selling price per unit. 17 18 1. 21 For 20x2 the selling price per lamp will be $45.00. What is the projected contribution margin and contribution margin ratio for each lamp sold? 22 190,000.00 23 $ 185,000.00 24 25 28 29 30 31 32 Contribution Margin per unit (Round to two places, $##.###) 35 36 Contribution Margin Ratio (Round to four places, % is two of those places ##.##%) 37 38 39 2. For 20x2 the selling price per lamp will be $45.00. The desired net income in 20x2 is $205,000. What 42 would sales in units have to be in 20x2 to reach the profit goal? Breakeven sales in units (Since we cannot sell part of a unit round up to the next unit if needed) Direct Labor: 2.0000000 per lamp (4 lamps/hr.) Variable Overhead: 2.0000000 per lamp Fixed Overhead: 10.0000000 per lamp (based on normal capacity of 25,000 lamps 36 Cost per lamp: $30.0000000 per lamp 37 38 39 49 Expected increases for 20x2 When calculating projected increases round to TWO ($0.00) decimal places. 1. Material Costs are expected to increase by 3.00%. 2. Labor Costs are expected to increase by 4.00%. 3. Variable Overhead is expected to increase by 4.00%. 50 51 52 53 I See The Light Projected Balance Sheet 63 As of December 31, 20x1 64 65 Current Assets 66 Cash $ 34,710.00 43 67 Accounts Receivable 67,500.00 44 45 77 Inventory 46 78 Raw Material 4. Fixed Overhead is expected to increase to $285,000. 49 79 Lamp Kits 500 @ $16.00 8,000.00 50 80 Work in Process 0 51 5. Fixed Administrative expenses are expected to increase to $60,000. 81 Finished Goods 3000 @ $30.00 90,000.00 52 91 Total Current Assets $ 200,210.00 53 6. Variable selling expenses (measured on a per lamp basis) are expected to increase by 3.00%. 92 56 93 Fixed Assets 57 94 95 7. Fixed selling expenses are expected to be $31,000 in 20x2. 105 Equipment Accumulated Depreciation Total Fixed Assets $ 20,000.00 6,800.00 58 59 13,200.00 60 106 Total Assets $ 213,410.00 8. Variable administrative expenses (measured a per lamp basis) are expected to increase by 2.00%. 107 108 109 Current Liabilities 119 On the following schedule develop the following figures: Accounts Payable 120 Total Liabilities 121 Stockholder's Equity 1- 20x2 Projected Variable Manufacturing Unit Cost of a lamp. 122 Common Stock 123 Retained Earnings 2- 20x2 Projected Variable Unit Cost per lamp. 3- 20x2 Projected Fixed Costs. 133 Total Stockholder's Equity 134 Total Liabilities and Stockholder's Equity 135 136 137 138 139 140 141 {5.01} {5.02} {5.03} 64 63 3. For 20x2 the selling price per lamp will be $45.00. If the fixed cost increase by $40,000.00 how many lamps must be sold to breakeven? 65 66 67 $ 54,000.00 68 $ 54,000.00 69 70 $ 12,000.00 71 147,410.00 72 159,410.00 73 $ 213,410.00 74 75 76 Breakeven sales in units (Since we cannot sell part of a unit round up to the next unit if needed) {5.04} 77 78 79 80 81