The Great Toy Company (GTC) Produces a Radio-Controlled Toy That

Essay

The Great Toy Company (GTC) produces a radio-controlled toy that it wholesales to retailers. For the month of September 2008, GTC reported a before-tax profit of $4,400 when it produced and sold 7,500 units of the toy.

GTC's controller has provided the following information about the company's cost structure:


Note 1: These are additional total variable costs to produce (sell) the additional 4,000 units.
Note 2: Each is calculated as additional fixed cost divided by the 4,000 additional units.

The marketing manager states that the average selling price per unit for the 7,500 units that were sold in September 2008 is valid for the first 8,000 units. She, however, estimates that the average unit selling price for the additional 4,000 units will be 7.5% lower.

Required:

a. Calculate the following for the two levels of production and sales:

(i) Average variable manufacturing cost per unit
(ii) Average selling and administrative cost per unit
(iii) Total fixed manufacturing cost
(iv) Total fixed selling and administrative cost

b. Using the contribution margin format, prepare the following:

(i). An income statement for month ended September 30, 2008 when GTC produced and sold 7,500 units.
(ii). Prepare a contribution for the month when GTC expects to produce and sell 12,000 units.