180. Steven Company has fixed costs of $160,000. The unit selling price, variable cost per unit, and
contribution margin per unit for the company’s two products are provided below.
Product
Selling Price per unit
Variable Cost per unit
Contribution Margin
per unit
X
$180
$80
$100
Y
$100
$50
$50
The sales mix for product X and Y is 60% and 40% respectively. Determine the break-even point in units of X and Y.
181. The Keith Company reports the following data.
Sales
$900,000
Variable costs
$500,000
Fixed costs
$350,000
182. The Tom Company reports the following data.
Sales
$600,000
Variable costs
$400,000
Fixed costs
$100,000
183. The Dean Company has sales of $500,000, and the break-even point in sales dollars of $300,000.
Determine the company’s margin of safety percentage.
184. The Grant Company has sales of $300,000, and the break-even point in sales dollars if $225,000.
Determine the company’s margin of safety percentage.
185. Blane Company has the following data:
Total Sales
$800,000
Total Variable Costs
$300,000
Fixed Costs
$200,000
Units sold
50,000 units
What will operating income be if units sold double to 100,000 units?
Total Sales
$1,600,000
Total Variable Costs
$ 600,000
Contribution Margin
$1,000,000
Fixed Costs
$ 200,000
Operating Income
$ 800,000
186. Douglas Company has a contribution margin ratio of 30%. If Douglas has $336,420 in fixed costs, what
amount of sales will need to be generated in order for the company to break even?
187. Racer Industries has fixed costs of $900,000. Selling price per unit is $250 and variable cost per unit is
$130.
Required:
a. How many units must Racer sell in order to break even?
b. How many units must Racer sell in order to earn a profit of $480,000?
c. A new employee suggests that Racer Industries sponsor a company 10-K as a form of advertising. The
cost to sponsor the event is $7,200. How many more units must be sold to cover this cost?
188. Global Publishers has collected the following data for recent months:
Month
Issues published
Total cost
March
20,500
$20,960
April
21,800
22,464
May
17,750
18,495
June
21,200
21,395
Required:
a. Using the high-low method, find variable cost per unit, total fixed costs, and the total cost equation.
b. What is the estimated cost for a month in which 19,000 issues are published?
189. Trail Bikes, Inc. sells three Deluxe bikes for every seven Standard bikes. The Deluxe bike sells for $1,800
and has variable costs of $1,200. The Standard bike sells for $600 and has variable costs of $200.
Required:
A. If Trail Bikes has fixed costs that total $1,702,000, how many bikes must be sold in order for the company
to break even?
B. How many of these bikes will be Deluxe bikes and how many will be the Standard bikes?
190. If a business had a capacity of $10,000,000 of sales, actual sales of $6,000,000, break-even sales of
$4,200,000, fixed costs of $1,800,000, and variable costs of 60% of sales, what is the margin of safety
expressed as a percentage of sales?
191. Safari Co. sells two products, Orks and Zins. Last year Safari sold 21,000 units of Orks and 14,000 units of
Zins. Related data are:
Product
Unit Selling
Price
Unit Variable
Cost
Unit Contribution
Margin
Orks
$120
$80
$40
Zins
80
60
20
Calculate the following:
a. Safari Co.’s sales mix
b. Safari Co.’s weighted average unit selling price
c. Safari Co’s weighted average unit contribution margin
d. Safari Co’s break-even point assuming that last year’s fixed costs were $160,000.
192. Given the following information:
Variable cost per unit = $5.00
July fixed cost per unit = $7.00
Units sold and produced in July 25,000
What is total estimated cost for August if 30,000 units are projected to be produced and sold?
193. Carrolton, Inc. currently sells widgets for $80 per unit. The variable cost is $30 per unit and total fixed
costs equal $240,000 per year. Sales are currently 20,000 units annually.
The company is considering a 20% drop in selling price that they believe will raise units sold by
20%. Assuming all costs stay the same, what is the impact on income if they make this change?
Current Scenario:
194. Given the following:
Variable cost as a percentage of sales = 60%
Unit Variable cost = $30
Fixed costs = $200,000
What is the break-even point in units?
195. A business had a margin of safety ratio of 20%, variable costs of 75% of sales, fixed costs of $240,000, a
break-even point of $960,000, and operating income of $60,000 for the current year. Calculate the current
year’s sales.
196. For the current year ending January 31, Harp Company expects fixed costs of $188,500 and a unit variable
cost of $51.50. For the coming year, a new wage contract will increase the unit variable cost to $55.50. The
selling price of $70.00 per unit is expected to remain the same.
(a)
Compute the break-even sales (units) for the current year.
(b)
Compute the anticipated break-even sales (units) for the coming year, assuming the new wage contract is signed.
Round your answer to the nearest whole number.
197.
(a)
If Swannanoa Company’s budgeted sales are $1,000,000, fixed costs are $350,000, and variable costs are $600,000, what is the
budgeted contribution margin ratio?
(b)
If the contribution margin ratio is 30%, sales are $900,000 and fixed costs are $200,000, what is the operating profit?
198. Louis Company sells a single product at a price of $65 per unit. Variable costs per unit are $45 and total
fixed costs are $625,500. Louis is considering the purchase of a new piece of equipment that would increase
the fixed costs to $800,000, but decrease the variable costs per unit to $42.
Required:
If Louis Company expects to sell 44,000 units next year, should they purchase this new equipment?
199. Cordell, Inc. has an operating leverage of 3. Sales are expected to increase by 9% next year. What is the
expected change in operating income next year?
(b)
$188,500/($70.00 – $55.50) = 13,000 units
200. Explain how variable costing net income will be different than absorption costing net income under the
following situations:
(1) A company had no beginning or ending inventory. During the year they produced and sold 10,000 units.
(2) A company had no beginning inventory. During the year they produced 10,000 units and sold 8,000 units.
(3) A company had 2,000 units in beginning inventory. During the year they produced 10,000 units and sold
12,000 units.
201. Match the following terms with their definitions.
2. A specific activity range over which the cost changes
4. Remain the same in total dollar amount as the level of
Contribution
202. Match the following terms with their definitions.
1. Contribution margin divided by income from
2. Focuses on costs, sales, and operating profit or
3. The relative distribution of sales among products
Cost-volume-profit
4. Indicates the possible decrease in sales that may
5. Focuses on profits rather than on revenues or
203. The following is a list of various costs of producing sweatshirts. Classify each cost as either a variable,
fixed, or mixed cost for units produced and sold.
(a)
Leather used to make a handbag.
(b)
Warehouse rent of $8,000 per month plus $.50 per square foot of storage used.
(c)
Thread.
(d)
Electricity costs of $.038 per kilowatt-hour.
(e)
Janitorial costs of $4,000 per month.
(f)
Advertising costs of $12,000 per month.
(g)
Accounting salaries.
(h)
Color dyes for producing different colors of sweatshirts.
(i)
Salary of the production supervisor.
(j)
Straight-line depreciation on sewing machines.
(k)
Patterns for different designs. Patterns typically last many years before being replaced.
(l)
Hourly wages of sewing machine operators.
(m)
Property taxes on factory, building, and equipment.
(n)
Cotton and polyester cloth.
(o)
Maintenance costs with sewing machine company. The cost is $2,000 per year plus $.001 for each machine hour of use.
(a)
variable
(i)
fixed
(b)
mixed
(j)
fixed
(c)
variable
(k)
fixed
(d)
variable
(l)
variable
(e)
fixed
(m)
fixed
(f)
fixed
(n)
variable
(g)
fixed
(o)
mixed
(h)
variable
204. The cost graphs in the illustration below shows various types of cost behaviors.
For each of the following costs, identify the cost graph that best describes its cost behavior as the number of
units produced and sold increases:
(a)
Sales commissions of $6,000 plus $.05 for each item sold.
(b)
Rent on warehouse of $12,000 per month.
(c)
Insurance costs of $2,500 per month.
(d)
Per-unit cost of direct labor.
(e)
Total salaries of quality control supervisors. One supervisor must be added for each additional work shift.
(f)
Total employer pension costs of $.35 per direct labor hour.
(g)
Per-unit straight-line depreciation costs.
(h)
Per-unit cost of direct materials.
(i)
Total direct materials cost.
(j)
Electricity costs of $5,000 per month plus $.0004 per kilowatt-hour.
(k)
Per-unit cost of plant superintendent’s salary.
(l)
Salary of the night-time security guard of $3,800 per month.
(m)
Repairs and maintenance costs of $3,000 for each 2,000 hours of factory machine usage.
(n)
Total direct labor cost.
(o)
Straight-line depreciation on factory equipment.
Graph
Graph
(a)
2
(i)
1
(b)
3
(j)
2
(c)
3
(k)
4
(e)
5
(m)
5
205. Copper Hill Inc. manufactures laser printers within a relevant range of production of 70,000 to 100,000
printers per year. The following partially completed manufacturing cost schedule has been prepared:
Number of Printers
Produced
70,000
90,000
100,000
Total costs:
Total variable costs
$350,000
(d)
(j)
Total fixed costs
630,000
(e)
(k)
Total costs
$980,000
(f)
(l)
Cost per unit:
Variable cost per unit
(a)
(g)
(m)
Fixed cost per unit
(b)
(h)
(n)
Total cost per unit
(c)
(i)
(o)
Complete the preceding cost schedule, identifying each cost by the appropriate letter (a) through (o).
206. For the current year ending April 30, Hal Company expects fixed costs of $60,000, a unit variable cost of
$70, and anticipated break-even of 1,715 sales units.
(a)
Compute the unit sales price.
(b)
Compute the sales (units) required to realize an operating profit of $8,000.
Round your answer to the nearest whole number.
(a)
$5.00 ($350,000/70,000 printers)
(b)
$9.00 ($630,000/70,000 printers)
(c)
$14.00 ($980,000/70,000 printers)
(d)
$450,000 ($5.00 ´ 90,000 printers)
(e)
$630,000
(f)
$1,080,000 ($450,000 + $630,000)
(g)
(h)
$7.00 ($630,000/90,000 printers)
(j)
$500,000 ($5.00 ´ 100,000 printers)
(k)
$630,000
(l)
$1,130,000 ($500,000 + $630,000)
(m)
$5.00
(n)
$6.30 ($630,000/100,000 units)
(o)
$11.30 ($1,130,000/100,000 units)
207. Currently, the unit selling price is $50, the variable cost, $34, and the total fixed costs, $108,000. A
proposal is being evaluated to increase the selling price to $54.
(a)
Compute the current break-even sales (units).
(b)
Compute the anticipated break-even sales (units), assuming that the unit selling price is increased and all costs remain constant.
208. For the coming year, River Company estimates fixed costs at $109,000, the unit variable cost at $21, and
the unit selling price at $85. Determine (a) the break-even point in units of sales, (b) the unit sales required to
realize operating income of $150,000 and (c) the probable operating income if sales total $500,000.
Round units to the nearest whole number and percentage to one decimal place.
(a)
$109,000 / ($85 – $21) = 1,703 units
209. For the past year, Pedi Company had fixed costs of $70,000, unit variable costs of $32, and a unit selling
price of $40. For the coming year, no changes are expected in revenues and costs, except that property taxes are
expected to increase by $10,000. Determine the break-even sales (units) for (a) the past year and (b) the coming
year.
(b)
S = $80,000/$8 = 10,000 units
(a)
$108,000/($50 – $34) = 6,750 units
(b)
$108,000/($54 – $34) = 5,400 units
210. For the past year, Hornbostel Company had fixed costs of $6,552,000, a unit variable cost of $444, and a
unit selling price of $600. For the coming year, no changes are expected in revenues and costs, except that a
new wage contract will increase variable costs by $6 per unit. Determine the break-even sales (units) for (a) the
past year and (b) the coming year.
211. Perfect Stampers makes and sells aftermarket hub caps. The variable cost for each hub cap is $4.75 and the
hub cap sells for $9.95. Perfect Stampers has fixed costs per month of $3,120. Compute the contribution margin
per unit and break-even sales in units and in dollars for the month.
212. A company with a break-even point at $900,000 in sales revenue had fixed costs of $225,000. When actual
sales were $1,000,000 variable costs were $750,000. Determine (a) the margin of safety expressed in dollars,
(b) the margin of safety expressed as a percentage of sales, (c) the contribution margin ratio, and (d) the
operating income.
213. A company has a margin of safety of 25%, a contribution margin ratio of 30%, and sales of $1,000,000.
(a)
What is the break-even point?
(b)
What is the operating income?
(c)
If neither the relationship between variable costs and sales nor the amount of fixed costs is expected to change in the next year, how
much additional operating income can be earned by increasing sales by $110,000?
214. Silver River Company sells Products S and T and has made the following estimates for the coming year:
Product
Unit Selling Price
Unit Variable Cost
Sales Mix
S
$30
$24
60%
T
70
56
40
Fixed costs are estimated at $202,400. Determine (a) the estimated sales in units of the overall product necessary to reach the break-even point for the
coming year, (b) the estimated number of units of each product necessary to be sold to reach the break-even point for the coming year, and (c) the
estimated sales in units of the overall product necessary to realize an operating income of $119,600 for the coming year.
Unit variable cost = ($24 ´ 60%) + ($56 ´ 40%) = $36.80
Unit contribution margin = $46.00 – $36.80 = $9.20
$202,400/$9.20 = 22,000 overall units
(b) S: 13,200 units (22,000 units ´ 60%)
T: 8,800 units (22,000 units ´ 40%)
(c) Sales = ($202,400 + $119,600)/$9.20 = 35,000 units
215. Define operating leverage. Explain the relationship between a company’s operating leverage and how a
change in sales is expected to impact profits.
(a)
Margin of safety = $1,000,000 ´ 25% = $250,000
Break-even point = $1,000,000 – $250,000 = $750,000
(b)
$250,000 (margin of safety) ´ 30% (contribution margin ratio) = $75,000
(c)
$110,000 ´ 30% = $33,000
216. The following data are available from the accounting records of Suwanee Co. for the month ended May 31,
2012. 17,000 units were manufactured and sold during the accounting period at a price of $60 per unit. There
was no beginning inventories and all units were completed (no work in process).
Cost
Total Cost
Number of Units
Unit Cost
Manufacturing costs:
Variable
$442,000
17,000
$26
Fixed
170,000
17,000
10
Total
$612,000
$36
Selling and administrative expenses:
Variable ($2 per unit sold)
$34,000
Fixed
32,000
Total
$66,000
(a)
Prepare a variable costing income statement.
(b)
Prepare an absorption costing income statement.
Sales (17,000 ´ $60)
$1,020,000
Variable cost of goods sold (17,000 ´ $26)
442,000
Manufacturing margin
$ 578,000
Variable selling and administrative expenses
34,000
Contribution margin
$ 544,000
Fixed costs:
Fixed manufacturing costs
$170,000
Fixed selling and administrative expenses
32,000
202,000
Income from operations
$ 342,000
Sales (17,000 ´ $60)
$1,020,000
Cost of goods sold
612,000
Gross profit
$ 408,000
Selling and administrative expenses
66,000
Income from operations
$ 342,000
217. Kissimmee Paint Co. reported the following data for the month of July. There were no beginning
inventories and all units were completed (no work in process).
Total Cost
Number of Units
Unit Cost
Manufacturing costs:
Variable
$465,000
30,000
$15.50
Fixed
210,000
30,000
7.00
Total
$675,000
$22.50
Selling and administrative expenses:
Variable
$2 per unit sold
Fixed
$39,000
In the month of July, 28,000 of the 30,000 units manufactured were sold at a price of $80 per unit.
(a)
Prepare a variable costing income statement.
(b)
Prepare an absorption costing income statement.
(c)
Briefly explain why there is a difference in income from operations between the two methods.
(a)
Sales (28,000 ´ $80)
$2,240,000
Variable cost of goods sold:
Variable cost of goods manufactured
(30,000 ´ 15.50)
$465,000
Less ending inventory (2,000 ´ $15.50)
31,000
Variable cost of goods sold
434,000
Manufacturing margin
$1,806,000
Variable selling and administrative expenses
56,000
Contribution margin
$1,750,000
Fixed costs:
Fixed manufacturing costs
$210,000
Fixed selling and administrative expenses
39,000
249,000
Income from operations
$1,501,000
Sales (28,000 ´ $80)
$2,240,000
Cost of goods sold:
Cost of goods manufactured (30,000 ´ $22.50)
$675,000
Less ending inventory (2,000 ´ $22.50)
45,000
Cost of goods sold
630,000
Gross profit
$1,610,000
Selling and administrative expenses
(28,000 ´ $2 + $39,000)
95,000
Income from operations
$1,515,000