199) The following data relate to a product sold by Hallstone Company:
Total Variable costs
$90,000
Total fixed costs
$27,000
Predicted pre–tax income
$18,000
Contribution margin per unit
$5.00
(a) Calculate the number of units expected to be sold.
(b) Calculate the expected total dollar sales.
200) A product is sold for $45 and has variable costs of $33 per unit. The total fixed costs for the firm
are $180,600. If the firm desires to earn a pretax income of $77,400, how many units must be sold?
201) A firm produces and sells a product with a contribution margin of $32 per unit. The firm is
presently selling 90,000 units and earning $320,000 in pre–tax income. If the firm desires to
increase its pre-tax income to $ 400,000, how many more units must it sell?
202) Isaacson Co. has total fixed costs of $240,000 and a contribution margin ratio of 40%. If rent
expense increases by $5,000, how much will total sales revenue have to increase to cover this
increase in costs?
163
203) A company is looking into two alternative methods of producing its product. The following
information about the two alternatives is available. If the company’s expected sales volume is 35,000
units, which alternative should be selected?Prepare forecasted income statements and compute
degree of operating leverage to assess the alternatives.
Alternative#1
Alternative #2
Variable costs per unit
$8
$12
Fixed costs
$240,000
$140,000
Selling price per unit
$20
$20
204) Dodge Industries incurs the following costs during the current year:
Depreciation of machinery
$15,000
Direct labor.
6,000
Direct materials
4,000
Executive salaries
20,000
Insurance
2,000
Rent on building
8,000
Sales commissions
10,000
Vehicle lease cost
5,000
Sales for the year were $80,000 and Dodge Industries determined that only the direct production
costs (prime costs) and sales commissions are to be classified as variable costs; all other costs are
classified as fixed costs. Dodge sold 400 units.
(a) Calculate the unit contribution margin and the contribution margin ratio for Dodge
Industries.
(b) Dodge Industries is considering plans that would increase the contribution margin ratio for next
year. Should it pursue these plans? Explain.
205) Glover Headgear produces specialty logo baseball caps for a variety of customers. Selected cost
data for Glover follows: direct materials cost $8,000; sales commissions, $9,000; depreciation on
factory equipment, $21,000; factory labor, $16,000; factory lease, $24,000. If Glover sells 6,100
caps at an average price of $12 for each cap, what is the company’s contribution margin in total
dollars?
206) Ludington Corporation provides the following data from a recent period for its manufacture of
shoes: variable manufacturing costs, $24,000; variable selling costs, $12,000; and total fixed costs,
$40,000. Sales were $60,000 based on 12,000 units sold during the period. Calculate the
contribution margin and the contribution margin ratio.
207) A company has total fixed costs of $360,000. Its product sells for $40 per unit and variable costs
amount to $25 per unit. What is the break-even point in dollar sales?
208) The following information describes a product expected to be produced and sold by Quark
Corporation:
Selling price $33 per unit
Variable costs $27 per unit
Total Fixed costs $855,000 per year
Required:
(a) Calculate the contribution margin per unit.
(b) Calculate the break-even point in units.
SHORT ANSWER QUESTIONS
209) A company manufactures and sells searchlights. Each searchlight sells for $345. The variable cost
per unit is $198, and the company’s total fixed costs are $635,000. Predicted sales are 15,000 units.
What is the contribution margin per unit?
ESSAY QUESTIONS
210) Clockworks Co. reports the following data for the current year:
Units Sold 1,200
Unit Sales Price $30
Unit Variable Cost $10
Total Fixed Cost……………………………………….. $18,000
Required:
(a) Calculate Clockworks’ pretax income.
(b) Calculate Clockworks’ degree of operating leverage.
211) Fielder Productions reports the following information:
Total Contribution Margin…………………..$32,000
Total Fixed Costs……………………………. $28,000
Required:
(a) Calculate Fielder’s degree of operating leverage (DOL).
(b) Fielder Productions forecasts a 6% increase in sales. What is the expected effect in percent on
pretax income?
212) Craft Company and Jarmer Company each have sales of $200,000 and costs of $140,000. Craft
Company’s costs consist of $40,000 fixed and $100,000 variable, while Jarmer Company’s costs
consist of $100,000 fixed and $40,000 variable. Which company will suffer the greatest decline in
profits if sales volume declines by 15%?Prepare income statements and compute degree of
operating leverage to assess.
213) Wolowitz Company’s product has a contribution margin per unit of $62.50 and a contribution
margin ratio of 25%. What is the per unit selling price of the product?
214) A company sells a single product that has a contribution margin ratio of 28%. If the company’s
total fixed costs are $84,000, what is the break-even point in dollar sales?
215) Elk Co. manufactures a product that sells for $12 per unit. Total fixed costs are $96,000 and
variable costs are $7 per unit. Elk can buy a newer production machine that will increase total fixed
costs by $22,800 but variable costs will be decreased by $0.40 per unit. What effect would the
purchase of the new machine have on Elk’s break-even point in units?
216) Expanse Co. is considering the production and sale of a new product line with the following sales
and cost data: unit sales price $125; unit variable costs $50; and total fixed costs of $150,000.
Calculate the break-even point in units and in dollar sales.
217) Seaquest Company’s contribution margin income statement is presented below. Sales for the
current period consisted of 5,000 units. Determine the company’s break-even point in dollars.
Seaquest Company
Contribution Margin Income Statement
Sales
$125,000
Variable costs
90,000
Contribution margin
35,000
Fixed costs
28,000
Net income
$7,000
218) The following information is available for Alba Company’s maintenance cost over the last four
months.
Month
Maintenance
hours
Maintenance
cost
January
150
$6,000
February
120
$5,100
March
240
$8,100
April
210
$6,900
Use the high-low method to estimate both the fixed and variable component of its maintenance cost.
219) The following information is available for a company’s cost of sales over the last five months.
Month
Units sold
Cost of
sales
January
1,200
$43,000
February
800
$37,000
March
1,600
$49,000
April
2,400
$61,000
Use the high-low method to estimate the fixed and variable components of the cost of sales.
220) A company manufactures a product and sells it for $120 per unit. The total fixed costs of
manufacturing and selling the product are expected to be $155,250, and the variable costs are
expected to be $75 per unit. What is the company’s break-even point in (a) units and (b) dollar
sales?
221) A product has a contribution margin per unit of $17 and sells at $25 per unit. If the break-even
point is 82,000 units, calculate (a) the variable costs per unit and (b) the total fixed costs.
222) A firm provides the following sales data:
Expected unit sales.. 5,000 Unit variable cost….. $10
Unit selling price…. $16 Total fixed cost……. $12,000
Required:
(a) Calculate the break-even point in dollar sales.
(b) Calculate the margin of safety in dollar sales.