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Chapter 20: Q20E (page 1126)

Question: Determining fixed cost per unit

For each total fixed cost listed below, determine the fixed cost per unit when sales are 50, 100, and 200 units.

Store rent $ 5,000

Manager鈥檚 salary 3,000

Equipment lease 500

Depreciation on fixtures 250

Short Answer

Expert verified

Answer

The fixed cost per unit for 50 units is $175 per unit, for 100 units is $87.5, for 200 units is $43.75

Step by step solution

01

Calculation of total fixed cost

Particulars

Amount

Store rent

$5000

Manager鈥檚 salary

$3000

Equipment lease

$500

Depreciation on fixtures

$250

Total fixed cost

$8,750

02

Calculation of fixed cost per unit           

50

100

200

Total fixed cost

$8,750

$8,750

$8,750

梅 No. of units sold

50

100

20

Fixed cost per unit

$175

$87.5

$43.75

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Most popular questions from this chapter

Question: This problem continues the Piedmont Computer Company situation from Chapter 19. Piedmont Computer Company manufactures personal computers and tablets. Based on the latest information from the cost accountant, using the current sales mix, the weighted-average sales price per unit is \(750 and the weighed-average variable cost per unit is \)450. The company does not expect the sales mix to vary for the next year. Average fixed costs per month are \(156,000.

Requirements

1. What is the number of units that must be sold each month to reach the breakeven point?

2. If the company currently sells 945 units per month, what is the margin of safety in units and dollars?

3. If Piedmont Computer Company desires to make a profit of \)15,000 per month, how many units must be sold?

4. Piedmont Computer Company thinks it can restructure some costs so that fixed costs will be reduced to \(90,000 per month, but the weighted-average variable cost per unit will increase to \)525 per unit. What is the new breakeven point in units? Does this increase or decrease the margin of safety? Why or why not?

Question: Why is the calculation to determine the target profit considered a variation of the breakeven calculation?

What is cost stickiness? Why do managers need to be aware of cost stickiness?

What effect does an increase in sales price have on contribution margin? An increase in fixed costs? An increase in variable costs?

A furniture manufacturer specializes in wood tables. The tables sell for \(100 per unit and incur \)40 per unit in variable costs. The company has \(6,000 in fixed costs per month. The company desires to earn an operating profit of \)12,000 per month.

10. Calculate the required sales in units to earn the target profit using the equation method.

11. Calculate the required sales in units to earn the target profit using the contribution margin method.

12. Calculate the required sales in dollars to earn the target profit using the contribution margin ratio method.

13. Calculate the required sales in units to break even using the contribution margin method.
See all solutions

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