20–60
110.
Using cost-volume-profit formulas
Gary Corporation manufactures a single product. The selling price is $104 per unit, and
variable costs amount to $78 per unit. The fixed costs are $36,000 per month (round any
units to the next highest full unit).
(a) What is the contribution margin per unit? $_______________ per unit
(b) What is the contribution margin ratio? _______________%
(c) What is the monthly sales volume (in dollars) at the break-even point?
$________________
(d) How many units must be sold each month to earn a monthly operating income of
$32,000? _______________ units
(e) What is the monthly margin of safety (in dollars) if 3,000 units are sold each month?
$_______________
(f) What will be the monthly operating income if 3,000 units are sold each month?
$_______________
111.
Using cost-volume-profit formulas
Fantasy Corporation manufactures a single product. The selling price is $125 per unit, and
variable costs amount to $81 per unit. The fixed costs are $28,500 per month (round any
units to the next highest full unit).
(a) What is the contribution margin per unit? $_______________ per unit
(b) What is the contribution margin ratio? _______________% (Rounded to 1 decimal place)
(c) What is the monthly sales volume (in dollars) at the break-even point?
$________________
(d) How many units must be sold each month to earn a monthly operating income of
$50,000? _______________ units
(e) What is the monthly margin of safety (in dollars) if 1,500 units are sold each month?
$_______________
(f) What will be the monthly operating income if 1,500 units are sold each month?
$_______________
112.
Estimating costs and profit
International, Inc. expects total sales of $55 million, a margin of safety of $25 million, and a
contribution margin ratio of 25%. Compute the following:
(a) Variable costs: $_________________
(b) Break-even sales volume (in dollars): $_________________
(c) Fixed costs: $_________________
(d) Operating income: $_________________
113.
Cost-volume-profit analysis and strategy
A manufacturing company experiencing severe financial difficulties has applied for a large
government guaranteed loan. As a condition for obtaining the guarantee, the government
mandates that the company significantly reduce its annual break-even point. What steps
might the company take to achieve the required reduction in its break-even point?
114.
A manufacturing company produced the following report:
Required:
(1) How many units would have to be sold to break-even?
(2) If fixed overhead were to increase by $1,800 what would the break-even point in units
be?
(3) What is operating income if sales increase by 25%?
115.
Multiple product companies
Pet Park International sells cat food and dog food. Its monthly fixed costs average
$620,000. Cat food sales represent 80% of the company’s total revenue. Dog food sales
constitute the remaining 20%. The company has provided the following information
expressed on a per-case basis:
(a) The total monthly sales revenue required to break-even is $__________. (Rounded)
(b) The total monthly sales revenue required to earn an operating income of $135,000 is
$__________.
(c) The company’s margin of safety at a monthly sales level of $2,500,000 is $__________.
(d) If monthly fixed costs increase by $10,000, the break-even point, expressed in sales
dollars, will increase to $__________.
116.
Estimating costs and profit
First-Class Company sells a single product. The unit selling price is $250, and variable
costs are 60% of this selling price. Fixed costs are currently $68,000 per month.
(a) Calculate the monthly break-even point in units. ____________ Units.
(b) First-Class is considering the acquisition of new robotic equipment. Depreciation on the
new robots will increase monthly fixed costs by $8,000, but reduce variable costs to 50% of
the current selling price. If First-Class acquires the robots what will be the new monthly
break-even point in units? ________________________ Units.
117.
Stan Todd, Inc. wants to manufacture a new cell phone that can be worn on the wrist.
Information from doing market research shows that he can sell this phone for $25 each. His
fixed costs would be $145,000 a year and variable costs would amount to $10 per phone.
(1) What would the contribution margin ratio be?
(2) What sales volume in units would Stan need to break-even?
(3) What sales volume in units would Stan need to earn $200,000 profit?
(4) What would be the margin of safety if he sold 25,000 units (use the information
calculated in #2)?
20–70
118.
Cost-volume-profit analysis
Diana Company, a sole proprietorship, sells only one product. The regular price is $160.
Variable costs are 55% of this selling price, and fixed costs are $8,400 a month.
Management decides to decrease the selling price from $160 to $145 per unit. Assume that
the cost of the product and the fixed operating expenses are not changed by this pricing
decision.
(a) At the original selling price of $160 a unit, what is the contribution margin ratio?
_______________%
(b) At the original selling price of $160 a unit, what dollar volume of sales per month is
required for Diana Company to break-even? (Round your answer to the nearest whole
dollar) $_______________
(c) At the original selling price of $160 a unit, what dollar volume of sales per month is
required for Diana Company to earn a monthly operating income of $6,500? (Round your
answer to the nearest whole dollar) $________________
(d) At the reduced selling price of $145 a unit, what is the contribution margin ratio?
_______________%
(e) At the reduced selling price of $145 a unit, what dollar volume of sales per month is
required to break-even? (Round your intermediate percentage to one decimal place and
final answer to the nearest whole dollar) $_______________
119.
Mitchum, Inc. produced different amounts of product X each month as follows:
Using the high-low method, determine:
(1) The variable expense per unit
(2) The fixed expense
(3) If Mitchum produced 410 units what would total expenses be?
20–74
120.
High-low method
The following information is available regarding the total manufacturing overhead costs of
Paymore, Inc., for five months in 2015:
(a) Using the high-low method, compute the following (round all answers):
(1) The variable element of overhead cost per machine-hour.
(2) The fixed element of monthly overhead cost.
(b) Use the cost relationship determined in part (a) to estimate the total manufacturing
overhead costs for July 2015, given that 7,250 machine-hours are scheduled.
121.
High-low method
The following information is available regarding the total repair costs of Alexander Design
Company for six months of 2015:
(a) Using the high-low method, compute the following:
(1) The variable element of repair cost per unit of production:
$_________________ per unit
(2) The fixed element of the monthly repair cost: $__________________
(b) Use the cost relationship determined in part a to estimate the total repair cost for July
2015, given that production is scheduled for 2,300 units. $___________________
