Managerial Accounting Loss Question

Question

Trenton and Company makes a single product requiring $50 of direct materials. Manufacturing overhead is applied using a predetermined overhead of 150% of direct labor cost. One third of manufacturing overhead is fixed. There is no under or over applied overhead and the company has no beginning or ending inventory. The company reports the following results for August :
Number of Units Sold : 8,000
Selling Price Per Unit : $300
Manufacturing Cost Per Unit : $200
Variable Selling and Admin. Expenses per unit : $45
Total Fixed Selling and Admin Expenses : $290,000
Question : How many units can sales go down before company incurs a loss?
A) 1765 B) 5,100 C) 2,700 D) 6,235 E ) None
Please show help with steps. They say 150% of direct labor cost but don't give direct labor cost, is this a trick?

Answer 1

Answer: 1137.26 units 

 

= $290,000/$255 

Break Even Sales in Units  (where total sales revenue = total expenses)

Formula : Fixed Costs/Unit Contribution Margin

 

Calculate :

: $290,000 Fixed Cost
: $255 Unit Contribution Margin ($300-$45)
: $300 Selling price per unit
: $45   Variable cost per unit

Assume:
1. Direct labor cost is not needed to calculate..
2. Manufacturing cost = Factory overhead (cost of sales)
3. Factory overhead  = $227,452 ($1137.26*$200)..
4. Calculate a hypothetical Income Statement for August using Break Even units @ 1137.26

REVENUE
Total sales revenue   $341,177
Cost of sales (factory overhead)   $227,452                        

  Gross profit  $113,726
EXPENSES

Variable selling and admin    $51,177
Fixed selling and admin      $290,000

  Total Expenses   $341,177
Net Operating Income (Loss)   $(227,452)

Answer 2

Is manufacturing cost per unit supposed to be $20?