Exercise 18-5 (20 minutes)
The scatter diagram and its estimated line of cost behavior appear below.
The cost pattern appears to exhibit a step-wise pattern.
Exercise 18-6 (20 minutes)
The scatter diagram and line of estimated cost behavior appear below.
Selecting 0 and 2,400 units sold as the activity levels yields $2,500 as the
estimate of fixed costs and the following estimate of variable costs per
unit:
Using the high-low method yields $2,500 as the estimate of fixed costs and
variable costs per unit of:
Exercise 18-7A (20 minutes)
Using Excel® to estimate an ordinary least squares regression yields an
intercept of $2,500 and a slope of $1.50. The cost equation is thus $2,500
plus $1.50 per unit sold.
Exercise 18-8 (10 minutes)
(2) Contribution margin ratio = Contribution margin = $41 = 20%
Sales price $205
Exercise 18-9 (30 minutes)
(a) Contribution margin per unit = $180 – $135 = $45 per unit
(c) Break-even point in units = $562,500 / $45 = 12,500 units
Exercise 18-10 (15 minutes)
$0
0
$500,000
$1,000,000
$1,500,000
$3,500,000
$4,000,000
0 5,000 10,000 15,000 20,000 25,000
Units
Exercise 18-11 (20 minutes)
1.
BLANCHARD COMPANY
Contribution Margin Income Statement (at Break-Even)
Sales (12,500 x $180)………………….…………………..……….…..…..…..….$2,250,000
Variable costs (12,500 x $135)……………….…………..…..…..…..…….…. 1,687,500
Contribution margin (12,500 x $45)…………………………..…………..…..562,500
2. Sales (in dollars) to break even with increased fixed costs
Break-even = (Original fixed costs + Additional fixed costs)
Contribution margin ratio
Exercise 18-12 (25 minutes)
1. Unit sales at target income =
Fixed + Target
2. Dollar sales at target income = costs income
Contribution margin ratio
Exercise 18-13 (20 minutes)
BLANCHARD COMPANY
Forecasted Contribution Margin Income Statement
Sales (40,000 x $200)………………….…………………..….………..………..…$8,000,000
Variable costs (40,000 x $140)……………….……….………..…..…..……... 5,600,000
Contribution margin (40,000 x $60)…………………………..……………….2,400,000
Fixed Target
costs income
Contribution margin/unit
+
Exercise 18-14 (10 minutes)
1. Fixed costs + Target pretax income
Dollar sales = Contribution margin ratio
2.
Sales……………..………………..…..……….$1,296,000
Fixed costs………………………….………..(160,000)
Exercise 18-15 (30 minutes)
(a) Total expected variable costs
*The $60 variable costs per unit is computed by determining (i) sales
price per unit and (ii) subtracting contribution margin per unit:
(b) To solve, set up a brief contribution margin income statement
Sales (given)………………………………..………………………..…..…..$17,000,000
Thus: Fixed costs = $ 3,750,000
Exercise 18-16 (10 minutes)
1. Break-even in units = Fixed costs / Contribution margin per unit
= $324,000 / ($225 – $180) = 7,200 units
Exercise 18-17 (15 minutes)
1. Dollar sales for target income = Fixed costs + Target income
Contribution margin ratio
2. Margin of safety (%) = Expected sales – breakeven sales
Expected sales
Exercise 18-18 (15 minutes)
HUDSON CO.
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2016
Sales (9,600 x $225)……………….……………………………..…..…..…..…...$2,160,000
Variable costs (9,600 x $171*)………..………………..……………..…..…... 1,641,600
Exercise 18-19 (10 minutes)
1. Revised contribution margin per unit = $240 – $180 = $60
3. Break-even in units = Fixed costs / Contribution margin per unit
= $324,000/$60 = 5,400 units
Exercise 18-20 (15 minutes)
HUDSON CO.
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2016
Sales (11,000 x $225)…………….……………….………….…..…..…..…..…..$2,475,000
Variable costs (11,000 x $180)…………..………….…..…..………..…..….. 1,980,000
Exercise 18-21 (20 minutes)
1. Pretax income = Sales – Variable costs – Fixed costs
$155,000 = $___? ___ – $390,000 – $430,000
2. Instructor note: Use equation in Exhibit 18.23;
Unit sales = Fixed costs + Target pretax income
Contribution margin per unit
Exercise 18-22 (25 minutes)
1. Selling price per composite unit
8 windows @ $200 per unit……………………….…………..…..…..…..…...$1,600
2. Variable costs per composite unit
8 windows @ $125 per unit……………………….…………..…..…..…..…...$1,000
3. Break-even point in composite units
Fixed costs .
= Contribution margin per composite unit
4. Unit sales of windows and doors at break-even point