The Handy Doll Manufacturing Company:
a) The average doll sales price is $12.00, raw materials for a doll are $4, and it takes 15 minutes to assemble a doll. Production labor is paid $8.00 per hour. Operating expenses are as follows: salaries, $2,500 per week; insurance, $1,200 per quarter; rent, $1,500 per month; and utilities, $800 per month. How many dolls must be sold per month to break even? How many dollars in sales does this represent? What is the contribution margin for each doll sold?
b) For the company, if the goal is to make a profit of $5,000 per month, how many dolls must be sold?
c) What is the effect of an increase in variable costs as a percentage of sales on the contribution margin and on the break-even dollar amount?