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Applying the Regression Model

1. During its first year of operations, ABC Company paid $23,000 for direct materials and $18,500 for production workers' wages. Indirect manufacturing costs on the production facilities amounted to $16,500 while general, selling, and administrative expenses totaled $3,000. The company produced 16,000 units and sold 14,000 units at a price of $8.50 a unit.

What is the average cost per unit manufactured?

2. The following information is for a product manufactured and sold by XY company

Sales price per unit, $35
Variable cost per unit, $20
Total fixed costs, $300,000
Last year, Rivera earned a profit of $30,000.
Required:
(a) How many units did XY sell last year?

(b) XY's managers are considering decreasing the sales price to $30 in an effort to increase market share. Also, the company wants a profit of $80,000. How many units would it have to sell at the lower selling price to achieve this target?

3. The DEF Company makes and sells two products, as follows:

The DEF Company expects to incur annual fixed costs of $175,000. The relative sales mix of the products is 75% of A and 25% of unit of B.
Required:

1) Determine the total number of units of products (A and B combined) that Pargo must sell to break even.

2) What is the number of units of A and of B that Pargo would expect to sell at the break-even point?
thank you

Solution Preview

1. During its first year of operations, ABC Company paid $23,000 for direct materials and $18,500 for production workers' wages. Indirect manufacturing costs on the production facilities amounted to $16,500 while general, selling, and administrative expenses totaled $3,000. The company produced 16,000 units and sold 14,000 units at a price of $8.50 a unit.

What is the average cost per unit manufactured?

Cost per unit $23,000 / 16000 1.44 each
Each labor 18,500 / 16,000 1.16 each labor
indirect 16,500 / 16,000 1.03 each
Admin 3,000 / 16,000 .19 each

$61,000 / $16,000 = $3.82 average cost

Answer: 3.82

8.50 ea - 3.82 = $4.68 average profit
$8.50 x 14,000 = $119,000 gross revenue
$119,000 - $61,000 = $58,000 profit ...

Solution Summary

The following problem helps calculate average cost per unit, number of units sold, and break even point.

$2.19