During the month of March, the Easter Bunny produced 10,000 chocolate eggs. The beginning egg inventory was 0. Production cost information is as follows:
Direct Materials per unit $ 2.80
Direct labor per unit .74
Variable OH per unit .57
Fixed OH $6,520
In addition, the Bunny incurred variable selling expenses of .35 per egg and fixed selling expenses of $1,500. Chocolate eggs sell for $8.00 each.
a. What is the Easter Bunny’s breakeven in units? In dollars?
b. How many units would the Easter Bunny need to sell if he wanted to make target profit of $10,000? What would his sales dollars be?
c. What is the margin of safety in units and dollars assuming a current sales level of 5,000 eggs?
d. Using the current sales level of 5,000 eggs, what is the operating leverage? Use the operating leverage to predict the increase in net income if sales increase by 25%. Prove the percentage increase predicted using a contribution margin format income statement.
2. Refer to the data in problem 1. Now assume that the Easter Bunny produced 10,000 eggs and sold 9,712 eggs.
a. What is the unit product cost per egg using absorption costing? Using variable costing?
b. What is the value of the ending inventory using absorption costing? Using variable costing?
c. Prepare an income statement for the month using the absorption costing method (traditional income statement).
d. Prepare an income statement for the month using the variable costing method and the contribution format income statement.