Smarty Inc. Ltd produces two different products with the following monthly data: P1 P2 Total Selling price per unit $100 $12 Variable cost per unit $ 60 $ 3 Expected unit sales 21,000 14,000 35,000 Sales mix 60 percent 40 percent 100 percent Fixed costs $750,000 Assume the sales mix remains the same at all levels of sales. Required: a) Calculate the weighted average contribution margin per unit. b) How many units in total must be sold to break even? c) How many units of each product must be sold to break even?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Smarty Inc. Ltd produces two different products with the following monthly data:
|
|
P1 |
P2 |
Total |
|
Selling price per unit |
$100 |
$12 |
|
|
Variable cost per unit |
$ 60 |
$ 3 |
|
|
Expected unit sales |
21,000 |
14,000 |
35,000 |
|
Sales mix |
60 percent |
40 percent |
100 percent |
|
Fixed costs |
|
|
$750,000 |
Assume the sales mix remains the same at all levels of sales.
Required:
a) Calculate the weighted average contribution margin per unit.
b) How many units in total must be sold to break even?
c) How many units of each product must be sold to break even?
d) How many units of each product must be sold to earn a monthly profit of $100,000?
e) Prepare a contribution margin income statement for the month.
f) If the sales mix shifts more toward the P1 product than the P2 product, would the break-even point in units increase or decrease? Explain. (Detail calculations are not necessary but may be helpful in confirming your answer.)
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