Preparing a Profit Equation to Predict Future Profits
Picnic Time produces a picnic basket that is sold for $100 per unit. Assume the company produced and sold 4,000 baskets during July. There were no beginning or ending inventories. Variable and fixed costs follow.
Variable Cost per Unit:
- Manufacturing overhead: $36,000
- Direct materials: $25
- Selling and administrative: $68,000
- Direct labor: $15
Fixed Costs per Month:
- Manufacturing overhead: $45
- Selling and administrative: $4
a. Prepare a monthly profit equation.
b. Determine profit for the month of July using the equation from part a.
c. For August, the company estimates that sales will range between 4,100 on the low-end and 4,400 on the high-end. What is the range of predicted profits?
