During a Skype call, Jordan and Taylor discuss cost modeling with the assistant. They agree to meet later with brownies. The document provides cost information for manufacturing brownies and selling them to Yumminess for $10 per tin at a cost of $8 per tin. Manufacturing overhead is $100,000 and operating expenses are $80,000 annually. 85% of overhead and 20% of expenses are variable. Questions ask to calculate total fixed and variable costs, contribution margin per unit, break-even units, and sales decrease before incurring a loss.

1. During a Skype session with Jordan and Taylor, you mention that your current cost model in
accounting is break-even analysis. They are not following your explanation, but they say they
will swing by with some brownies for a discussion. More brownies! This is paying off, except
for those extra pounds.
Selling price to Yumminess at $10 per tin. The cost is $8 per tin, which includes $6 of direct
material and $1.50 of direct labor. Annual manufacturing overhead is estimated at $100,000 for
the expected sales of 200,000 tins. Operating expenses are projected to be $80,000 annually.
After looking over the costs for manufacturing overhead and operating expenses, you
approximate that 85% of manufacturing overhead and 20% of operating expenses are variable
costs.
Click on your group number and answer the questions. You must post your answers first and
then you will be able to see posts from your group members.As a group, responds with answers,
comments, and corrections to each others' posts. Your final answer is to be posted to the
dropbox.Remember that this is a group discussion project. The group will receive a group grade
(10% of your total course grade) and a peer review grade (5% of your total course grade). The
peer evaluation is to be sent to my iCollege email within 24 hours after the deadline for the final
answer. These evaluations are confidential, so please be honest. Each group member must fill out
the Peer Evaluation.
Chapter 18 Questions:
1. What is the TOTAL fixed cost?
2. What is the TOTAL variable cost?
3. What is the contribution margin per UNIT? (Do not round.)
4. How many units are necessary to reach break-even? (Always round up to the next unit for
break-even, since you cannot sell a partial unit.)
5. Jordan is concerned that they will not be able to sell 200,000 tins of brownies. Given 200,000
tins as their expected sales level, what is the decrease of total sales dollars that they endure
before they incur a net loss?
Solution
1. Total fixed cost :
Manufacturing Expenses = (100% -85% ) * $ 100000 = $15000
Operating expense = (100% - 20%) *$ 80000 = $64000
$ 79000
2. Total Variable cost :

2. Direct Material $6 * 200000 = $1200000
Direct Labour $1.50 * 200000 = $300000
Manufacturing overhead $0.5 * 200000 * 85% =$85000
Operating expenses $80000 * 20% =$16000
$ 1601000
3.Contribution margin per unit :
(sale - variable cost) / sales unit
($ 2000000 -$ 1601000) / 200000
$1.995 per unit
4.Unit to be made to reach break even :
Break even point (in units) = Total Fixed cost / Contribution margin per unit
= 79000 / 1.995
= 39599 units
note:Contribution margin per unit= (sales - variable cost) / sales per unit
= ($2000000 - $ 1601000 ) / 200000
= 1.995 per unit
5.Decrease of total sales dollars that they endure before incurring a net loss :
Decrease in total sale before they incur losses by = $1604010 ( $2000000 - $1604010 =$395990)
Total Break even sale as calculated = $10 * 39599 units = $395990