Compute the annual break-even sales in units and dollars

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Question - Draaksh Corporation sells premium quality wine for $85 per bottle. Its direct materials and direct labour costs are $16 and $9.50 respectively per bottle. It pays its direct labour employees a wage of $19 per hour.

The company performed a regression analysis using the past 12 months' data and established the following monthly cost equation for manufacturing overhead costs using direct labour hours as the overhead allocation base: y = $151,700 + $20.00x

Draaksh budgeted an amount of $33,400 per month for sales promotions; additionally, it has decided to offer a sales commission of $4.50 per bottle to its sales personnel. Administrative expenses are expected to be $24,700 per month.

Required -

1. Compute the expected total variable cost per bottle and the expected contribution margin ratio.

2. Compute the annual break- even sales in units and dollars.

3. Draaksh has budgeted sales of $8.2 million for the next fiscal year. What is the company's margin of safety in dollars and as a percentage of budgeted sales?

Reference no: EM132288975

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