Compute the cost per unit for the variable costs


Task: Budgeting behavioral implications

Crunch numbers is a manufacturer of calculators In the budget setting process, budget A was put together by lower and middle management. Budget B was put together by senior management.


A B
Unit sales 20,000 30,000
dollar sales $600,000 $900,000
less variable expenses:

     direct materials 260,000 360,000
     direct labor 40,000 60,000
     variable overhead 60,000 75,000
     variable selling and administrative expense 60,000 60,000
     total variable expenses 420,000 555,000
Contribution margin 180,000 345,000
less fixed expenses

     manufacturing $60,000 $50,000
     selling and administrative 100,000 80,000
     taxes and interest 10,000 10,000
     total fixed expenses $170,000 $140,000
Net income (loss) 10,000 205,000

A. Calculate the cost per unit for the variable costs.

B. why do you think budget A has high costs and low sales forecasts?

C. why do you think budget B has low costs and high sales forecasts? What are the behavioral implications of this top-down approach?

D. How should the two groups participate to come to a consensus on the budget? What are the advantages of this approach?

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Finance Basics: Compute the cost per unit for the variable costs
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