Solution to Child's Play (A1) Manufacturing costs for rattles (based on production volume of Direct material Direct labor

$10 per hour * (Each worker can make 20 units in an hour) Packaging Power, supplies, indirect labor, and other variable production costs Supervisory salaries, equipment rental, and miscellaneous production costs * These costs vary in total with production volume Selling and administrative costs (based on sales volume of Commissions to sales staff (10% of price to retailer **) Shipping Advertising and promotion Administrative staff salaries, depreciation on office equipment, etc ** These costs vary in total with sales volume. For 2003: 1. What is the materials cost at 2. What is the materials cost at 3. What is the total variable cost at 300000 units? 400000 units? 200,000 units? $ 240,000 $320,000 $910,000 $1,820,000 $0.80 $0.50 $0.60 $0.90 300,000 per unit ** per unit ** per unit per unit units) Variable SG&A cost per unit is: $1.30 FIXED FIXED $0.80 $0.50 $0.75 $1.20 $1.80 300,000 per unit * per unit * per unit * per unit * per unit FIXED Variable manufacturing cost per unit is: 3.25 units)

4. What is the total variable cost at 400,000 400000 units? units? 5. What is the fixed manufacturing cost at 300,000 units?

$594,000 300,000 unit production volume * $1.80 computed fixed cost per unit

10% increase relates to expected inflation in fixed cost. 6. What is the fixed manufacturing cost at 400,000 units? $594,000 same because at this level of cost can still supply 400,000 units of capacity 7. What is the fixed manufacturing cost at 450,000 units? $649,000 requires the rental of one more machine 8. What is the total fixed cost at 300,000 units? 300,000 unit production volume * $1.50 computed fixed cost per unit $1,089,000 10% increase relates to expected inflation in fixed cost.

9. What is the total fixed cost at 400,000 units? $1,089,000 10. What is the contribution margin per unit? $3.45 11. What is the contribution margin if 1000 units are sold? $3,450 12. What is the contribution margin if 100,000 units are sold? $345,000 13. What is the profit at the break even volume? zero (by definition) 14. What is the TOTAL contribution margin at the break even volume? Equal to the level of fixed costs 15. What is the break even volume? 315652 units

16. What is the profit at 1000 units above break even? $3,450 17. What is the profit at 2000 units below the break even? ($6,900.00)

18. What is the profit at 100,000 units above the break even identified in #15? $290,000 since this would bring the volume up to 415652 units and would therefore result in $55000 of extra fixed costs 19. What is the margin of safety at 1000 units above break even? 1000 units 20. What is the sales volume required to give $100,000 profit before tax? 344,638 which is feasible given the current level of fixed costs of $1,089,000

21. What is the sales volume required to give $180,000 after tax?

(assuming 40% tax rate)

402,609 which is NOT feasible given the current level of fixed costs of $1,089,000 Therefore recompute assuming a higher level of fixed costs and therefore capacity: 418,551 which IS feasible given the higher level of fixed costs and therefore the new capacity level of 500,000 units.