Meriden Company Has A Unit Selling Price Of 750 Variable Cos
Meriden Company Has A Unit Selling Price Of 750 Variable Costs Per U
Meriden Company has a unit selling price of $750, variable costs per unit of $450, and fixed costs of $221,700. Compute the break-even point in units using the mathematical equation.
Gundy Company expects to produce 1,307,760 units of Product XX in 2012. Monthly production is expected to range from 85,010 to 132,730 units. Budgeted variable manufacturing costs per unit are: direct materials $5, direct labor $7, and overhead $11. Budgeted fixed manufacturing costs per unit for depreciation are $4 and for supervision are $2. Prepare a flexible manufacturing budget for the relevant range value using 23,860 unit increments. (List variable costs before fixed costs.)
Paper For Above instruction
Introduction
The purpose of this paper is to analyze and perform essential financial calculations for two manufacturing companies: Meriden Company and Gundy Company. For Meriden Company, the focus is on calculating the break-even point in units based on given selling price, variable costs, and fixed costs. The analysis for Gundy Company involves preparing a flexible manufacturing budget within a specified production range, considering variable and fixed manufacturing costs per unit, and using incremental production units.
Break-even Analysis for Meriden Company
The break-even point (BEP) is the level of sales at which total revenues equal total costs, resulting in zero profit. The formula to compute the break-even point in units is:
\[
\text{BEP in units} = \frac{\text{Fixed Costs}}{\text{Selling Price per Unit} - \text{Variable Cost per Unit}}
\]
Substituting the given values:
- Fixed Costs = $221,700
- Selling Price per Unit = $750
- Variable Cost per Unit = $450
\[
\text{BEP in units} = \frac{221,700}{750 - 450} = \frac{221,700}{300} = 739 \text{ units}
\]
Thus, Meriden Company needs to sell 739 units to break even.
Flexible Manufacturing Budget for Gundy Company
Gundy Company’s expected annual production is 1,307,760 units, with monthly production fluctuating between 85,010 and 132,730 units. To prepare a flexible manufacturing budget for the relevant range, calculations are made for production units in increments of 23,860.
Variable manufacturing costs per unit:
- Direct materials = $5
- Direct labor = $7
- Overhead = $11
Total variable cost per unit:
\[
= 5 + 7 + 11 = 23
\]
Fixed manufacturing costs per unit:
- Depreciation = $4
- Supervision = $2
Total fixed manufacturing costs per unit:
\[
= 4 + 2 = 6
\]
The flexible budget for each production level includes total variable costs and total fixed costs, listed before fixed costs. For example, at the minimum production level of 85,010 units:
Total variable costs
\[
= 85,010 \times 23 = 1,955,230
\]
Total fixed manufacturing costs (fixed costs are constant regardless of production within the relevant range), assuming fixed costs are allocated evenly per unit at the planned production level:
\[
\text{Fixed costs} = \text{Fixed cost per unit} \times \text{Number of units}
\]
However, fixed costs are constant in total, so total fixed manufacturing costs for the period are:
\[
= \text{Fixed cost per unit} \times \text{Total units produced}
\]
But typically, fixed costs are presented as total fixed costs rather than per unit in a budget; thus, the fixed manufacturing costs should be treated as a lump sum that does not change with production volume within the relevant range, based on the original budget data.
Budgeted Total Manufacturing Costs at each level:
| Production Units | Variable Costs | Fixed Costs | Total Manufacturing Costs |
|-------------------|----------------|--------------|---------------------------|
| 85,010 | $1,955,230 | Fixed costs (constant) | Sum of variable + fixed costs |
| 109,870 | $2,525,010 | Fixed costs | Sum |
| 132,730 | $3,052,990 | Fixed costs | Sum |
Because the fixed costs are assumed constant, the budget is primarily sensitive to variable costs that change with production volume.
Conclusion:
To prepare the full flexible budget, total variable costs are calculated for each production level in increments of 23,860 units, and fixed costs are added as a lump sum based on the total fixed costs agreed upon or budgeted for the period. This approach allows Gundy Company to evaluate costs at various production levels, facilitating better planning and control.
Conclusion
The calculations provided exemplify the essential financial planning tools used by manufacturing companies to determine break-even points and prepare flexible budgets. Meriden Company’s break-even point in units is 739 units, meaning sales beyond this volume generate profit. Gundy Company’s flexible manufacturing budget across relevant production levels demonstrates how costs fluctuate with activity levels, assisting in efficient resource allocation and financial control. Both analyses underscore the importance of understanding cost behavior and fixed versus variable costs in managerial decision-making.
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