Answer D and explain Buggs-Off Corporation produces and sells a line of mosquito repellants that are sold usually all year round.The product sells at $100 per box. The following cost data has been prepared for its estimated upper and lowerlimits of activity for the year ended December 31, 2020.Lower Limit Upper LimitProduction (# of boxes)4,0006,000Production Costs:Direct Materials.Direct Labour...................$60,000$90,000....80,000120,000Overhead:Indirect Materials..25,00037,500......Indirect Labour ............40,00050,000Depreciation ..20,00020,000Selling & Administrative Expenses:Sales Salaries ..50,00065,000Office Salaries ...............*30,00030,000Advertising45,00045,000............Other ...15.000$365,000_20.000$477,500TotalRequired:a)Classify each cost element as either fixed, variable, or mixedb)Calculate:i) the variable production cost per unit and the total fixed production overhead.ii) The total variable cost per unit and the total fixed costsHint: Use the high-low method to separate mixed costs into their fixed and variable components.Assuming sales of 5,000 units, prepare a contribution margin income statement for the year endedDecember 31, 2020, detailing the components of total variable costs and total fixed costs, and clearlyshowing contribution and net income.c)d)Assuming sales of 5,000 units, calculate Buggs-Off break-even point and margin of safety in units andsales dollars.Recompute the break-even point in units, assuming that variable costs increased by 20% and fixedcosts are reduced by $50,625. How will this impact the margin of safety ratio?e)The President of Buggs-Off is under pressure from shareholders to increase operating incohe by 20%f)in 2021. Management expects per unit data and total fixed costs to remain the same in 2021. Using theequation method, compute the number of units that would have to be sold in 2021 to reach theshareholders desired profit level. Is this a realistic goal?Briefly explain the impact of each of the following scenarios on the contribution rgper umt and thebreak-even point:(i) Sales volume increases(ii) Total fixed cost decreases(iii) Selling price per unit increases(iv) Variable cost per unit increasesg)

Solution:- Calculation of break-even point and margin of safety in units and sales dollars as…

Answered: Assuming sales of 5,000 units,…

Business

Accounting

Assuming sales of 5,000 units, calculate Buggs-Off break-even point and margin of safety in units and sales dollars. d)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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