Cas 6-18

Case 6-18 Write Up

1. For this problem I solved the equation: Unit sales to attain target profit=(fixed expense+target profit)/unit contribution margin. First I fount unit contribution margin by doing CM=Sale Price per unit-Variable expense per unit. CM=200-120=80. I plugged this into the original equation: Unit sales to attain target profit=(12000000+4800000)/80=210,000. So 210,000 units need to be sold to reach the target net operating income of $4,800,000.

2. For this question, I adjusted the numbers in the original Basic Budget Data and Budgeted Income Statement to get the target net operating income of $4,800,000.

Basic Budget Data |

Units in beginning inventory | 0 |

Units produced | 210000 |

Units sold | 210000 |

Units in ending inventory | 0 |

Variable Costs per unit: | |

Direct Materials | 50 |

Direct labor | 40 |

Variable manufacturing overhead | 20 |

Variable selling and administrative | 10 |

Total Variable cost per unit | 120 |

| |

Fixed costs: | |

Fixed manufacturing overhead | $8,400,000 |

Fixed selling and administrative | $3,600,000 |

Total fixed costs | $12,000,000 |

Budgeted Income Statement (AbsorptionMethod) | |

Sales (210,000 units) | | $42,000,000 |

Cost of goods sold: | | |

Beginning Inventory | 0 | |

Add cost of goods manufactured (210,000 x $150 per unit) | $31,500,000 | |

Goods available for sale | $31,500,000 | |

Less ending inventory | 0 | $31,500,000 |

Gross margin | | $10,500,000 |

Selling and administrative expenses: | |

Variable selling and administrative | $2,100,000 | |

Fixed selling and administrative | $3,600,000 | 5700000 |

Net operating income | | $4,800,000 |

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3. For this question I used the equation given in the case notes, Fixed manufacturing overhead deferred = fixed manufacturing overhead/unit *number of units added to inventory. I plugged in the appropriate numbers, 800,000=(8,400,000/Q)x(Q-200,000)… I solved for Q and got...