For this year, production and sales are based on 4,000 units per year:
Building depreciation $200,000/yr.
Machine operators $100,000/yr.
Management staff $400,000/yr.
Direct materials $4,000,000/yr.
Other expenses that seem to vary based on production levels $3,000,000/yr.
Other expenses that don't seem to vary $1,300,000/yr.
Selling price per unit $5,000/unit
Some utilities relate to the heat and light of the building, but others are required during the manufacturing process only. Using the high-low method:
When there is no production, utility costs are $20,000/month
When production levels reached 4,000 units/month, utility costs totaled $40,000/month
Which of these 8 cost categories above are fixed, mixed (semi-variable or semi-fixed) and which are variable? Why is this?
Ignoring utility costs altogether, compute the contribution margin per unit, in dollars and in percentage and the break-even in sales.
Ignoring utility costs altogether, how many units must be sold each month to achieve a target profit of $10,000? At what sales level do they achieve this target profit?
In year 2, they will add $300,000/yr. in added administrative expenses. Ignoring utility costs, how many additional units must be sold just to pay for this added expense?
Your tutorial attached in Excel shows how to analyze these costs, which are variable, fixed and mixed and then creates a contribution margin analysis, breakeven, target profit and incremental fixed costs analysis.