Question one asks you to use the budget data and calculate how many motors would have to be sold for Waltham Motors Division to break even. The way you would go about completing this calculation would be to take the sales revenue from the budget ($864,000) and subtract the total variable costs ($512,800) to get the total contribution margin ($351,200). You would then take the total contribution margin and divide by the budgeted number of units (18,000) to get the contribution margin per unit (19.51). Using this contribution margin you can set up the equation 0 = 19.51Q – 260,000. The $260,000 is the total non-variable and programmed costs, otherwise known as the fixed costs. By solving for Q, you are solving for the breakeven point in units. The break even point in this case is 13,325.74 units, which we would round up to 13,326 units because you cannot have a fraction of a unit. This can be seen below, as well as in the first section of the spreadsheet where it is labeled “1. How many motors would have to be sold to breakeven?”
Question two asks, what is the expected cost per unit if all manufacturing and shipping overhead (fixed and variable) is allocated to planned production? Also, what is the actual cost per unit if all manufacturing and shipping overhead is allocated to actual production? To answer the first part of question two, you would take the total budgeted variable cost ($512,800) and add the total fixed cost ($260,000) to get a total budgeted cost of $772,800. When you divide this sum by the number of units (18,000) you get an expected cost per unit of $42.93. Further, to solve for the second part of question two, you would do similar calculations but use the actual budget instead of the master budget. Using the actual budget you would take the total variable cost of $432,000 and add the total non-variable cost of $261,000 to get a total cost of $693,200. When you take this sum and divide it by the actual number of units produced (14,000), you get an actual cost per unit of $49.51, which is greater than the expected cost per unit of $42.93. This can be seen below, as well as in the spreadsheet in section 2, labeled “what is the total expected cost per unit and what is the actual cost per unit”.
The third question asks us to modify the performance report in Exhibit 1 of the case to be like the report in Exhibit 7-2 of our text. This can be seen below as well as in the spreadsheet in the third section.
So, as you can see the flexible budget variance is $20,356 unfavorable and the sales volume variance is $78,044 unfavorable, making the static…