Exercise 4-7 Scattergraph
Month
Customer
Service
Cost
Sales
May $9,740 $170,000
June $10,100 $210,000
July $10,690 $230,000
August $12,750 $255,000
September $13,830 $275,000
Required
Reef Office Supplies is interested in estimating the relationship between customer service costs
and sales. The following data are available:
a. Prepare a scattergraph of customer service cost (vertical axis) and sales (horizontal axis).
b. Comment on whether there appears to be a linear relation between cost and sales and whether
any of the observations appear to be outliers.
Solution: Exercise 4-7 Scattergraph
Month
Customer
Service
Cost
Sales
May $9,740 $170,000
June $10,100 $210,000
July $10,690 $230,000
August $12,750 $255,000
September $13,830 $275,000
Required
b. Comment on whether there appears to be a linear relation between cost and sales and whether
any of the observations appear to be outliers.
Reef Office Supplies is interested in estimating the relationship between customer service costs
and sales. The following data are available:
a. Prepare a scattergraph of customer service cost (vertical axis) and sales (horizontal axis).
$0
$2,000
$4,000
$6,000
$0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000
Customer Service Costs
Exercise 4-12 CVP Analysis, Profit Equation
Lake Stevens Marina has estimated that fixed costs per month are $350,000 and
variable cost per dollar of sales is $0.30 .
Required
a. What is the break-even point per month in sales dollars?
Selling price per dollar of sales
Variable cost per dollar of sales
Contribution margin per dollar of sales
Break-even point = ÷ =
$70,000 ?
Sales required = ÷ =
$1,000,000 . What is the
expected level of profit?
Expected profit = ―=
What-if?
Consider the following after you have completed the requirements of E4-12.
1. Total fixed costs increase to $365,000.
Break-even point = ÷ =
2. Variable costs decline to $0.25 per sales dollar.
Break-even point = ÷ =
3. The anticipated sales volume increases to $1,100,000.
Break-even point = ÷ =
c. For the month of July, the marina anticipates sales of
b. What level of sales is needed for a monthly profit of
Determine the effect on the break-even point in sales dollars considering each of the following
independently.
Solution: Exercise 4-12 CVP Analysis, Profit Equation
a. What is the break-even point per month in sales dollars?
Selling price per dollar of sales
$ 1.00
$70,000 ?
What-if?
Consider the following after you have completed the requirements of E4-12.
Determine the effect on the break-even point in sales dollars considering each of the following independently.
1. Total fixed costs increase to $365,000.
b. What level of sales is needed for a monthly profit of
Problem 4-6 Account Analysis, High-Low, Contribution Margin
April May June
1,700 1,850 1,950
$4,500 $4,500 $4,500
3,900 3,900 3,900
15,960 16,275 16,590
12,500 12,500 12,500
Total $41,910 $42,380 $42,715
Required
Variable cost per room =
Fixed costs per month =
―=
c. Average rates per room are $120 per night. What is the contribution margin per
occupied room? In answering this question, use your variable cost estimate from Part b.
Contribution margin per room:
―=
Information on occupancy and costs at the Light House Hotel for April, May, and June are indicated
below:
Complimentary continental breakfast:
food and beverages
5,050
5,205
5,225
a. Calculate the fixed costs per month and the variable cost per occupied room using account
analysis for April.
Fixed costs per month (April data):
Occupancy
Day manager salary
Night manager salary
Cleaning staff
Depreciation
Number of rooms
Variable costs per room
Variable costs per room (April data):
=
b. Calculate the fixed costs per month and the variable cost per occupied room using the high-low
method.
Solution: Problem 4-6 Account Analysis, High-Low, Contribution Margin
April May June
1,700 1,850 1,950
$4,500 $4,500 $4,500
3,900 3,900 3,900
15,960 16,275 16,590
12,500 12,500 12,500
Total $41,910 $42,380 $42,715
c. Average rates per room are $120 per night. What is the contribution margin per
occupied room? In answering this question, use your variable cost estimate from Part b.
Contribution margin per room:
Information on occupancy and costs at the Light House Hotel for April, May, and June are indicated
below:
5,225
5,205
5,050
Complimentary continental breakfast:
food and beverages
Occupancy
Day manager salary
Night manager salary
Cleaning staff
Depreciation
a. Calculate the fixed costs per month and the variable cost per occupied room using account
analysis for April.
Fixed costs per month (April data):
b. Calculate the fixed costs per month and the variable cost per occupied room using the high-low
method.
Day manager salary
Night manager salary
Variable costs per room (April data):
Cleaning staff
Complimentary continental breakfast: food and beverages
Problem 4-9 High-Low, Profit Equation
Crux, Inc. produces amplifiers. Each unit sells for $900 . Below is information
on production/sales and costs for 2016:
Production
and
Sales in
Units
Production
Costs
Selling and
Admin. Costs
January 105 $88,860 $23,570
February 117 97,600 25,200
March 97 83,007 22,495
April 106 89,600 23,720
May 115 96,200 24,950
June 125 103,500 26,250
July 128 105,670 26,690
August 132 108,550 27,200
September 138 112,978 28,030
October 126 104,200 26,400
November 124 102,750 26,150
December 108 91,050 23,990
Total 1,421 $1,183,965 $304,645
Average cost per unit $833.19141 $214.38776
Required
Production costs:
Variable cost per unit =
Fixed costs per month =
―=
Selling and administrative costs:
Variable cost per unit =
Fixed costs per month =
―=
b. The company estimates that production and sales in 2017 will be 1,650 units.
Based on this estimate, forecast income before taxes for 2017.
Sales
Less production costs:
=
a. Use the high-low method to identify the fixed and variable cost components for both
production costs and selling and administrative costs.
=
Variable
Fixed
Less selling and administrative costs:
Variable
Fixed
Income (loss)
Solution: Problem 4-9 High-Low, Profit Equation
Crux, Inc. produces amplifiers. Each unit sells for $900 . Below is information
on production/sales and costs for 2016:
Production
and
Sales in
Units
Production
Costs
Selling and
Admin. Costs
January 105 $88,860 $23,570
February 117 97,600 25,200
March 97 83,007 22,495
April 106 89,600 23,720
May 115 96,200 24,950
June 125 103,500 26,250
July 128 105,670 26,690
August 132 108,550 27,200
September 138 112,978 28,030
October 126 104,200 26,400
November 124 102,750 26,150
December 108 91,050 23,990
Total 1,421 $1,183,965 $304,645
Average cost per unit $833.19141 $214.38776
Required
Production costs:
a. Use the high-low method to identify the fixed and variable cost components for both
production costs and selling and administrative costs.
b. The company estimates that production and sales in 2017 will be 1,650 units.
Based on this estimate, forecast income before taxes for 2017.
Problem 4-13 Multiproduct, Contribution Margin Ratio
Consulting Training Repair Total
Sales
$ 600,000 $ 525,000 $ 375,000 $ 1,500,000
Less variable costs:
Salaries
300,000 210,000 225,000 735,000
Supplies/parts
24,000 39,000 75,000 138,000
Other
1,200 2,700 5,000 8,900
Contribution margin
$ 274,800 $ 273,300 $ 70,000 618,100
Less common fixed costs:
Rent
55,000
Owner’s salary
212,000
Utilities
13,000
Other
10,000
Profit 328,100$
Required
a. Linda O’Flaherty, the owner of ComputerGuard, believes that in the coming year, she can
increase sales by 15 percent. Assuming the current mix of services, what will be the percentage
increase in profit associated with a 15% increase in sales?
Weighted-average contribution margin ratio =
Increase in sales =
Increase in sales
Weighted-average contribution margin ratio
Dollar increase in profit
Percentage increase in profit
Why will profit increase at a greater percent than sales?
b. If Linda were to focus on the contribution margin per unit (rather than the contribution margin
ratio), what would be a likely unit of service?
ComputerGuard offers computer consulting, training, and repair services. For the most recent fiscal
year, profit was $328,100, as follows:
=
What-if?
Consider the following after you have completed the requirements of P4-13.
How much sales revenue is ComputerGuard expected to generate at the breakeven point?
Weighted-average contribution margin ratio:
÷ =
Breakeven point in sales revenue for the entire company:
÷ =
Consulting Training Repair Total
Sales
$ 600,000 $525,000 $ 375,000 $ 1,500,000
Less variable costs:
Salaries
300,000 210,000 225,000 735,000
Supplies/parts
24,000 39,000 75,000 138,000
Other
1,200 2,700 5,000 8,900
Contribution margin
$ 274,800 $273,300 $ 70,000 618,100
Less common fixed costs:
Rent
55,000
Owner’s salary
212,000
Utilities
13,000
Other
10,000
Profit 328,100$
Required
a. Linda O’Flaherty, the owner of ComputerGuard, believes that in the coming year, she can
increase sales by 15 percent. Assuming the current mix of services, what will be the percentage
increase in profit associated with a 15% increase in sales?
Increase in sales =
Increase in sales 225,000$
Why will profit increase at a greater percent than sales?
b. If Linda were to focus on the contribution margin per unit (rather than the contribution margin
ratio), what would be a likely unit of service?
Solution: Problem 4-13 Multiproduct, Contribution Margin Ratio
ComputerGuard offers computer consulting, training, and repair services. For the most recent fiscal
year, profit was $328,100, as follows:
What-if?
Consider the following after you have completed the requirements of P4-13.
How much sales revenue is ComputerGuard expected to generate at the breakeven point?
Weighted-average contribution margin ratio:
If the owner of ComputerGuard wanted to focus on the contribution margin per unit, she would,
most likely, treat hours worked (on consulting, training, or repair services) as the unit of service.