Problem:
Suppose that Adams Company sells a product for $20. Unit costs are as follows:
Direct materials $3.90
Direct labor 1.40
Variable factory overhead 2.10
Variable selling and administrative expense 1.60
Total fixed factory overhead is $52,000 per year, and total fixed selling and administrative expense is $38,530.
Required:
1. Calculate the variable cost per unit and the contribution margin per unit.
2. Calculate the contribution margin ratio and the variable cost ratio.
3. Calculate the break-even units.
4. Prepare a contribution margin income statement at the break-even number of units.