# Waltham Motors Division

Topics: Variable cost, Fixed cost, Costs Pages: 12 (2937 words) Published: May 4, 2009
Q1. Using budget data, how many motors would have to be sold for Waltham Motors Division to break even?

Breakeven Fixed costs\$260,000.00
= ---------------------------------- = ---------------------- = 13,326 units number of units Unit contribution margin \$19.51

UCM (Unit Contribution margin) = USP (Unit Selling Price) UVC (Unit Variable Costs) =
= \$48.00 - \$28.49 = \$19.51

USP = Sales / Units sold = \$864,000.00/18,000 = \$48.00
UVC = Total variable costs / Units produced = \$512,800.00/18,000 =\$28.49

Conclusion: The company should produce, based on the budget data, at least 13,326 units in order to cover all its costs.

Q2. Using budget data, what was the total expected cost per unit if all manufacturing and shipping overhead (both variable and fixed) was allocated to planned production? What was the actual per unit cost of production and shipping?

Direct Materials\$6.00

Direct Labor\$16.00

Fixed\$8.22

Period CostsVariable*\$7.82\$1.60
Fixed\$6.22

* Shipping costs are to be considered Period Costs, not Overhead Cost because these costs are reported on the income statement as they are incurred. They are not part of manufacturing overhead, nor related to making the product.

Direct Materials\$108,000.00
Direct Materials Unit Cost = --------------------------- = -------------------------- = \$6.00/unit
No. of Unit Produced 18,000

Direct Labor \$288,000.00
Direct Labor Unit Cost = --------------------------- = -------------------------- = \$16.00/unit
No. of Unit Produced 18,000

Overhead (variable) Unit Cost = --------------------------- = -------------------------- = \$4.89/unit
No. of Unit Produced 18,000

Overhead (fixed) Unit Cost = --------------------------- = -------------------------- = \$8..22/unit
No. of Unit Produced 18,000

Period Variable Costs \$28,800.00
Period Variable Costs Unit Cost = --------------------------- = -------------------------- = \$1.60/unit
No. of Unit Produced18,000

Period Fixed Costs \$112,000.00
Period Fixed Costs Unit Cost = --------------------------- = -------------------------- = \$6.22/unit
No. of Unit Produced 18,000

** Based on the case there was no initial inventory or final inventory, therefore the number of units sold was also the number of units produced.

In the same respect we computed the Full Production Cost and the Full Cost for the actual results of the company.

Direct Materials \$85,400.00
Direct Materials Unit Cost = --------------------------- = -------------------------- = \$6.10/unit
No. of Unit Produced 14,000

Direct Labor \$246,000.00
Direct Labor Unit Cost = --------------------------- = -------------------------- = \$17.57/unit
No. of Unit Produced 14,000

Overhead (variable) Unit Cost = --------------------------- = -------------------------- = \$5.18/unit
No. of Unit Produced 14,000

Fixed Overhead \$149,200.00 Overhead (fixed) Unit Cost = --------------------------- = -------------------------- = \$10.66/unit
No. of Unit Produced 14,000

Period Variable Costs \$28,000.00 Period Variable Costs Unit Cost = --------------------------- = -------------------------- = \$2.00/unit
No. of Unit Produced 14,000

Period Fixed Costs \$112,000.00
Period Fixed Costs Unit Cost = --------------------------- = -------------------------- = \$8.00/unit...