Untitled Edited Verdana 9 X Company estimates the following

Untitled Edited Verdana 9. X Company estimates the following for its three products for 2018: Product Units Sold SP VC 35,650 21,550 7,750 $33.18 $25.40 10.38 5.63 19.77 8.36 Fixed costs in 2018 are expected to be $720,000. What is the expected weighted average contribution margin per unit in 2018? 10. In 2017, X Company\'s profits after taxes were $174,000. In 2018, the selling price is expected to be $44.20, the variable cost per unit is expected to be $22.50, and total fixed costs are expected to be $170,000. Assuming a tax rate of 33%, how many units must X Company sell in 2018 in order to earn profit of $189,000? 11. X Company is considering modifying one of its main products next year that would make it more attractive to customers. Financial information for the product for this year was as follows: Selling price Variable costs per unit Total fixed costs $9.42 3.40 $10,120 If it modified the product, X Company could increase the selling price by $2.14, and unit sales for the modified product would still be the same as current product unit sales. However, fixed costs would increase to $14,580. At what unit sales level would X Company be indifferent between modifying the product and not modifying it? Questions 12 and 13 refer to the following information X Company is considering buying a part next year that they currently make. This year\'s production costs for 3,400 units were: Direct materials Direct labor Variable overhead Total $10,914 10,744 15,300 Per-Unit $3.21 3.16 4.50 MacBook bD F5

Solution

9. Answer : $ 7.32

Contribution margin per unit = Selling Price - Variable Cost.

Weighted average contribution margin per unit = $ ( 33.18 - 25.40) x 7,750 / 64,950 + $ ( 10.38 - 5.63) x 35,650 / 64,950 + $ ( 19.77 - 8.36) x 21,550 / 64,950 = $ ( 0.928 + 2.607 + 3.786 ) = $ 7.32

10. Target profit before taxes = $ 189,000 / ( 1 - 0.33) = $ 282,090.

Contribution margin required = Profit before taxes + Fixed Cost = $ 282,090 + $ 170,000 = $ 452,090.

Contribution margin per unit =$ 44.20 - $ 22.50 = $ 21.70.

Unit needed to be sold to earn an after tax profit of $ 189,000 = Total Contribution Margin / Unit Contribution Margin = $ 452,090 / $ 21.70 = 20,833.64 units or 20,834 units.

11. The indifference sales level is the level at which the net operating income is the same regardless of product modication or no product modication.

Indifference sales level = Incremental Fixed Cost / Increase in Unit Contribution Margin = $ ( 14,580 - 10,120) / $ 2.14 = 2,084.11 units

12.

If the company buys the part, it will save = $ ( 50,514 - 49,062) = $ 1,452.

13. Contribution margin per unit = ( Buyout price per unit - Variable cost per unit) = $ ( 13.26 - 10.87) = $ 2.39.

Indifference level = $ ( 7,895 + 2,400) / $ 2.39 = 4,307.53 units.

	Without Modification	With Modification
Unit Sales	2,084.11 units	2,084.11 units units
Sales Revenue	$ 19,632.32	$ 24,092.31
Variable Cost	7,085.97	7,085.97
Contribution Margin	$ 12,546.35	$ 17,006.34
Fixed Cost	10,120	14,580
Net Operating Income	$ 2,426.35	$ 2,426.34