CHAPTER 16
Cost-Volume-Profit Analysis
COLLABORATIVE LEARNING EXERCISE SOLUTION
1. a. Overhead = $3,868 + $108.95 setups
R2 = 0.867
b. Overhead = –$516 + $9.64 machine hours
2. To compute the break-even units, we need total fixed costs and the contribution margin per unit.
Fixed overhead (Regression intercept × 12) $ 15,168
Setup costs ($89.42 × 160 setups last year) 14,307
Fixed selling and administrative expense 180,000
Total fixed costs $209,475
Total
Contribution Sales Contribution
Margin Mix Margin
Pasta $0.25 2 $0.50
Sauce 0.66 1 0.66
Total $1.16
Break-even packages = ($180,000 + $15,168 + $14,307)/$1.16 = 180,582
3. Uncertainty in the cost estimates and sales mix naturally leads to some uncertainty in the
break-even estimates. The fixed and variable costs were estimated using regression. These
estimates are heavily reliant on the assumptions of regression. To the extent that Sorrentino