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Find cost behavior (fixed, variable, mixed) from budget

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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

Utilities:
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?

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Solution Summary

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.

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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