Klingon Holdings has prepared a marketing study that shows the following demand and average price for each of its services for the following period:
|
A |
B |
C |
|
|
Volume |
150,000 |
200,000 |
350,000 |
|
Estimated selling price per unit |
$50 |
$35 |
$25 |
|
The variable costs for each are |
$20 |
$17 |
$14 |
Fixed expenses have been budgeted as $6,900,000.
Using the above information:
- Calculate the contribution per unit of volume (and in total) for each service. Which is the preferred service? Why? What should the business strategy be?
- Determine the absorption (full) cost per unit for the three services using three different methods of allocating overheads.
- How do the results of these different methods compare?
- Assuming a constant mix of the services sold, calculate the breakeven point for the business.