Chapter 5 – Weygandt Managerial 7e
Challenge Exercises
Solution
CE5-1
(a)
Part 1
Total fixed costs = $2,200 + $274 + $750 = $3,224
Variable costs per student = $40 + $5 + $3 = $48
OR
Contribution margin ratio = $52/$100 = 52%
Break even in dollars = Fixed costs / Contribution margin ratio = $3,224 / .52 = $6,200
(b)
Part 1
Total fixed costs = $2,700 + $274 + $770 = $3,744
Part 2
Use the break even formula:
Break even in units = Fixed costs___ = Fixed Costs___ _
Contribution margin Selling price per unit – variable cost per unit
Solution
CE 5-2
Part a.
Original net income:
Sales (15,000 units @$60 per unit)…………………………………$900,000
Less: Variable Costs (15,000 units @31.50 per unit)…………….. 472,500
Alternative #1
New Selling price = $60 + (2.5% x $60) = $61.50
Alternative #2
New variable costs = 49% x $900,000 = $441,000
$900,000 – $441,000 – 202,500 = $256,500
Alternative 2 results in the highest net income.
Net income under long term option:
Sales (15,750 units @ $59 per unit)…………………………………$929,250
Less: Variable Costs (15,750 @ $29.50) per unit)………………….464,625
Contribution margin……………………………………………………..464,625