Budgeting

Ardwick Company manufactures a variety of pens, including the Flic line which sells for $4.00 per box of one dozen pens. The costs of manufacturing and marketing the product at the company’s normal volume of 80,000 boxes per year follow:

Cost per box

Manufacturing costs:

Direct Materials $0.95

Direct Labor 1.00

Variable overhead 0.30

Fixed manufacturing overhead ($40,000 total) 0.50

Total manufacturing costs per box $2.75

Nonmanufacturing costs:

Variable marketing, distribution & administrative $0.15

Fixed marketing & administrative ($36,000 total) 0.45

Total nonmanufacturing costs per box 0.60

Total cost per box $3.35

Unless otherwise stated, assume that the situations described in the questions below are independent.

Required:

a. (1) Prepare an income statement in a contribution margin format (see the Breakeven Example_solution (week 1 folder on Blackboard)) showing the company’s operating income before tax at the normal volume level.

(2) What is the contribution margin per unit?

| |PER UNIT (box of dozen) |% |TOTAL 80,000 units |

|Sales |$4 | |$320,000 (80,000*4) |

|Less Variable Costs | | | |

|Direct Materials |$0.95 | |$76,000 (80,000*0.95) |

|Direct Labor |$1.0 | |$80,000 (80,000*1) |

|Variable Manufacturing Overhead |$0.3 | |$27,000 (80,000*0.3) |

|Variable Marketing, Distribution &...