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Symbol Manufacturing Inc. makes component parts for automobile navigation systems. For component A14 direct materials cost $47, and the assembly technicians are paid $42 per hour. A technician can produce two components per hour. Fixed manufacturing costs for A14 are $70,000 per unit based on current production of 12,000 units. Non-manufacturing costs are fixed at $120,000 per period. Each A14 component sells for $195.
   
Required:
a.   Prepare an income statement in gross margin format.
b.   Calculate the dollar sales required to generate an operating profit of $1,500,000 and prepare an income statement in contribution margin format.
c.   What actions could Symbol Manufacturing Inc. management take to lower the required number of units sold necessary to generate the desired operating profit?
Textbook 

Cost Accounting: A Managerial Emphasis, Canadian Edition


Edition: 7th
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a.   Revenue (12,000 × $195)                    $ 2,340,000
   Cost of goods sold:
   Materials (12,000 × $47)      $564,000
   Direct labour (12,000 × ($42/2)        252,000
   Fixed manufacturing costs       840,000
   Cost of goods sold   1,656,000
   Gross margin   $   684,000
   Fixed non-manufacturing costs   120,000
   Net operating profit   $ 564,000

b.   CM ratio = ($2,340,000 - $564,000 - $252,000)/$2,340,000 = 65.13%
   ($840,000 + $120,000 + $1,500,000)/0.6513 = $3,777,061.26
   # of units required =   $3,777,061.26/$195 per unit = 19,370 units (rounded up)

   Revenue (19,370 × $195)                     $ 3,777,150
    Variable costs:
   Materials (19,370 × $47)        $910,390
           Direct labour (19,370 × ($42/2)           406,770           1,317,160   
   Contribution margin         $ 2,459,990
   Fixed costs:
   Fixed manufacturing costs           840,000
   Fixed non-manufacturing costs           120,000           960,000
   Net operating profit   $ 1,499,990

c.   The management could evaluate a number of options based on increasing the per unit revenue and decreasing costs both variable and fixed.
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