The salespeople at Larkspur, a notebook manufacturer, commonly pressured operations managers to keep costs down so the company could give bigger discounts to large customers. David, the operations supervisor, leaked the $0.80 total unit cost to salespeople, who were thrilled, since that was slightly lower than the previous year's unit cost. Budgets were not yet finalized for the upcoming year, so it was unclear what the target unit cost would be. David knew the current year's operating capacity was two million notebooks, and Larkspur produced and sold just that many. The detailed breakdown of the $0.80 total unit cost is as follows. Direct material $0.05 Direct labor 0.20 Variable overhead 0.15 Fixed overhead 0.40 Total cost per unit $0.80
1) What were Lakspur's total fixed costs? if the average selling price was $2.05, howw much gross maging did the company generate?
Total fixed costs $________
Gross Margin $_________
2)If Larkspur incurs exactly the same total ize costs but produces and sells only $1,600,000 notebooks this coming year, what happens to the fixed cost per unit? In turn, what would the total cost per unit be? If the average selling price stays at $205 How much gross margin would be earned?
Fixed costs Increaded/decreased by $___________ per unit
Total cost per unit $ _________ per unit
Gross margin $__________
3)If Larkspur reqorks its equipment layout and processes to increase the top end of its relevant range activity to 2,500,000 notebooks without incurring more fized costs, what happens to the fixed cost per unit if it is able to make and sell that larger quantity of units?
Fixed costs Increaded/decreased by $___________ per unit
Total cost per unit $ _________ per unit
Gross margin $__________
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