Waltham Case
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Waltham
According to its own budget, the company had net income $91,200; however, the result of the performance report showed the division lost $7,200 in May. There is a problem which is the company lost the contract in April but there is no adjustment had been made to the budget.
Break even of WMD
By using budget data, we can get the number of motors which Waltham Motor Division would have to sell to break even.
The formula of Break-even quantity is
Total Fixed Costs / Contribution Margin per Unit
Total Fixed Costs / (Selling Price – Average Variable Costs per Unit)
In addition, the following formula is also to compute contribute margin and get income.
Revenue
－ Variable Costs
Contribution Margin
－ Fixed Costs
Net Income
Revenue = Selling Price x Quantity
$864,000 = Price x $18,000 Price = $48
Average Variable Costs per Unit is 512800/18000=28.49
Break-even quantity = 260000/48-28.49 = 13326.5
Therefore, according to data budget, Waltham Motors Division would have to sell more than 13,326 units in order to break even or cover all the costs which it spent.
The total expected and total actual costs per unit
If all manufacturing and shipping overhead (both variable and fixed) was allocated to planned production, the total expected cost per unit would be:
(Variable Costs + Fixed Cost) / total units = 42.93 / per unit
However, the actual per unit cost of production and shipping would be: 49.51 / per unit