BASIC BREAK-EVEN CALCULATIONS
Suppose that Adams Company sells a product for $16. Unit costs are as follows:
|
Direct materials
|
$3.90
|
|
Direct labor
|
1.40
|
|
Variable overhead
|
2.10
|
|
Variable selling and administrative expense
|
1.60
|
Total fixed overhead is $52,000 per year, and total fixed selling and administrative expense is $37,950.
Required:
1. Calculate the variable cost per unit and the contribution margin per unit.
2. Calculate the contribution margin ratio and the variable cost ratio.
3. Calculate the break-even units.
4. Prepare a contribution margin income statement at the break-even number of units.