01.08.2022 - 23:02

# Units Sold to Break Even, Unit Variable Cost, Unit Manufacturing Cost, Units to Earn Target Income Werner Company produces and sells disposable foil baking pans to retailers for $2.75 per pan. The var Question: Units Sold to Break Even, Unit Variable Cost, Unit Manufacturing Cost, Units to Earn Target Income Werner Company produces and sells disposable foil baking pans to retailers for$2.75 per pan. The variable cost per pan is as follows:

Direct materials – $0.37 Direct labor –$0.63

Variable factory overhead – $0.53 Variable selling expense –$0.12

Fixed manufacturing cost totals $111,425 per year. Administrative cost (all fixed) totals$48,350.

1. Compute the number of pans that must be sold for Werner to break even.

2. Conceptual Connection: What is the unit variable cost? What is the unit variable manufacturing cost? Round your answers to the nearest cent.

3. How many pans must be sold for Werner to earn operating income of $13,530? 4. How much sales revenue must Werner have to earn operating income of$13,530? (Round your answer to the nearest cent.)

• 1. To break even, the total cost equals total revenue. Total cost includes variable and fixed costs. Variable cost per pan is ($0.37 +$0.63 + $0.53 +$0.12) = $1.65. To calculate fixed costs per pan, divide the annual fixed costs by the number of pans produced per year. Fixed cost per pan is ($111,425 + $48,350) ? 90,000 pans =$2.01. Therefore, the total cost per pan is $1.65 +$2.01 = $3.66. To break even, the revenue per pan needs to equal the cost per pan, so the number of pans to sell to break even is$3.66 ? $2.75 = 1,330 pans. 2. Unit variable cost is the cost per unit that changes with the level of production. In this case, it is$1.65 per pan (computed in 1.). Unit variable manufacturing cost is the cost of producing a single unit that changes with the level of production. In this case, it is the same as unit variable cost as there are no other variable costs outside of manufacturing costs. 3. To determine the number of pans to sell to earn $13,530 operating income, we need to add the operating income to the fixed costs and divide by the contribution margin (price minus variable cost per unit). Contribution margin per unit is$2.75 - $1.65 =$1.10. Fixed costs per pan are ($111,425 +$48,350) ? 90,000 pans = $2.01. Therefore, the number of pans to sell to earn$13,530 operating income is ($13,530 +$2.01) ? $1.10 = 12,318 pans. 4. To determine the sales revenue needed to earn$13,530 operating income, we need to multiply the number of pans (12,318 pans computed in 3.) by the selling price per pan $2.75. Therefore, the sales revenue needed to earn$13,530 operating income is 12,318 pans x $2.75 =$33,949.50.