Snug-As-A-Bug manufactures sleeping bags. For the coming year, the company has budgeted the following costs for the production and sale of 80,000 units:

 

Percentage

Budgeted         of Costs Budgeted          Costs      Considered

Costs           per Unit          Variable

Direct materials  . . . . . . . . . . . . . . . . . . . . . . . . . . .        $1,440,000            $18                 100%

Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              160,000                2                 100

Manufacturing overhead (fixed and variable) . . . . .      2,400,000              30                   10

Selling and administrative expenses  . . . . . . . . . . .          800,000              10                   40

Totals  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        $4,800,000            $60

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Instructions

a.      Compute the sales price per unit that would result in a budgeted operating income of $560,000, assuming that the company produces and sells 80,000 bags. (Hint: First compute the budgeted sales revenue needed to produce this operating income.)

b.      Assuming that the company decides to sell the sleeping bags at a unit price of $71 per unit, compute the following:

1.      Total fixed costs budgeted for the year.

2.      Variable cost per unit.

3.      The unit contribution margin.

4.      The number of bags that must be produced and sold annually to break even at a sales price of $71 per unit.