Question 1

Henderson Farms reports the following results for the month of November: $$\begin{array} { l r } 
\text { Sales (10,000 units) } & \$ 600,000 \
\text { Variable costs } & 420,000 \
\text { Contribution margin } & 180,000 \
\text { Fixed costs } & 110,000 \
\text { Net income } & \$ 70,000
\end{array}$$ Management is considering the following independent courses of action to increase net income.
1. Increase selling price by 5% with no change in total variable costs.
2. Reduce variable costs to 66  % of sales.
3. Reduce fixed costs by $10000.
Instructions
If maximizing net income is the objective which is the best course of action?

Accepted Answer

The answer of Henderson Farms reports the following results for...

Question 2

Jane Botosan operates a bed and breakfast hotel in a resort area near Lake Michigan. Depreciation on the hotel is $60000 per year. Jane employs a maintenance person at an annual salary of $41000 and a cleaning person at an annual salary of $24000. Real estate taxes are $10000 per year. The rooms rent at an average price of $60 per person per night including breakfast. Other costs are laundry and cleaning service at a cost of $10 per person per night and the cost of food which is $5 per person per night.
Instructions
(a) Determine the number of rentals and the sales revenue Jane needs to break even using the contribution margin technique.
(b) If the current level of rentals is 4000 by what percentage can rentals decrease before Jane has to worry about having a net loss?
(c) Jane is considering upgrading the breakfast service to attract more business and increase prices. This will cost an additional $3 for food costs per person per night. Jane feels she can increase the room rate to $68 per person per night. Determine the number of rentals and the sales revenue Jane needs to break even if the changes are made.

Accepted Answer

The answer of Jane Botosan operates a bed and breakfast...

Question 3

Salem Bakery sells boxes of donuts each with a variable cost percentage of 35%. Its fixed costs are $54600 per year.
Instructions
Determine the sales dollars Salem needs to break even per year.

Accepted Answer

The answer of Salem Bakery sells boxes of donuts each...

Question 4

Bill Braddock is considering opening a Fast 'n Clean Car Service Center. He estimates that the following costs will be incurred during his first year of operations: Rent $9200 Depreciation on equipment $7000 Wages $16400 Motor oil $2.00 per quart. He estimates that each oil change will require 5 quarts of oil. Oil filters will cost $3.00 each. He must also pay The Fast 'n Clean Corporation a franchise fee of $1.10 per oil change since he will operate the business as a franchise. In addition utility costs are expected to behave in relation to the number of oil changes as follows: $$\begin{array} { c c } 
\text { Number of Oil Changes } & \text { Utility Costs } \
\hline 4,000 & \$ 6,000 \
6,000 & \$ 7,300 \
9,000 & \$ 9,600 \
12,000 & \$ 12,600 \
14,000 & \$ 15,000
\end{array}$$ Bill Braddock anticipates that he can provide the oil change service with a filter at $25 each.
Instructions
(a) Using the high-low method determine variable costs per unit and total fixed costs.
(b) Determine the break-even point in number of oil changes and sales dollars.
(c) Without regard to your answers in parts (a) and (b) determine the oil changes required to earn net income of $20000 assuming fixed costs are $32000 and the contribution margin per unit is $8.

Accepted Answer

The answer of Bill Braddock is considering opening a Fast...

Question 5

Cannon Co. has a unit selling price of $500 variable cost per unit $300 and fixed costs of $240000.
Instructions
Compute the break-even point in units and in sales dollars.

Accepted Answer

The answer of Cannon Co. has a unit selling price...

Question 6

Moresan Co. gathered the following information on power costs and factory machine usage for the last six months: $$\begin{array} { l c c } 
\text { Month } & \text { Power Cost } & \text { Factory Machine Hours } \
 \text { January } & \$ 24,400 & 13,900 \
\text { February } & 30,400 & 17,600 \
\text { March } & 29,000 & 16,800 \
\text { April } & 22,340 & 13,200 \
\text { May } & 19,900 & 11,600 \
\text { June } & 16,900 & 8,600
\end{array}$$ Instructions
Using the high-low method of analyzing costs answer the following questions and show computations to support your answers.
(a) What is the estimated variable portion of power costs per factory machine hour?
(b) What is the estimated fixed power cost each month?
(c) If it is estimated that 10000 factory machine hours will be run in July what is the expected total power cost for July?

Accepted Answer

The answer of Moresan Co. gathered the following information on...

Question 7

Webber Inc. developed the following information for its product: $\begin{array}{lr}
&\text { Per Unit }\
\text { Sales price } & \$ 90 \
\text { Variable cost } & \underline{63} \
\text { Contribution margin } & \underline{\underline{\$ 27}} \\
\text { Total fixed costs } & \$ 1215.000
\end{array}$ Instructions
Answer the following independent questions and show computations using the contribution margin technique to support your answers.
1. How many units must be sold to break even?
2. What is the total sales that must be generated for the company to earn a profit of $60000?
3. If the company is presently selling 50000 units but plans to spend an additional $108000 on an advertising program how many additional units must the company sell to earn the same net income it is now making?
4. Using the original data in the problem compute a new break-even point in units if the unit sales price is increased 20% unit variable cost is increased by 10% and total fixed costs are increased by $236250.

Accepted Answer

The answer of Webber Inc. developed the following information for...

Question 8

At break-even point a company sells 1200 widgets. Its selling price is $6 per widget variable cost is $2 per widget and its fixed cost is $4 per widget.
Instructions
If it sells 200 additional widgets determine the company's incremental profit.

Accepted Answer

The answer of At break-even point a company sells 1200...

Question 9

The Bradshaw Law Office has the following monthly telephone records and costs: $$\begin{array} { l r } 
\text { Calls } & \text { Costs } \
\hline 2,000 & \$ 2,400 \
1,500 & 2,000 \
2,200 & 2,600 \
2,500 & 2,800 \
2,300 & 2,700 \
1,700 & 2,200
\end{array}$$ Instructions
Identify the fixed and variable cost elements using the high-low method.

Accepted Answer

The answer of The Bradshaw Law Office has the following...

Question 10

Oakbrook Inc. reported actual sales of $2000000 and fixed costs of $350000. The contribution margin ratio is 25%.
Instructions
Compute the margin of safety in dollars and the margin of safety ratio.

Accepted Answer

The answer of Oakbrook Inc. reported actual sales of $2000000...

Question 11

Hurly Co. has fixed costs totaling $165000. Its unit contribution margin is $1.50 and the selling price is $5.50 per unit.
Instructions
Compute the break-even point in units.

Accepted Answer

The answer of Hurly Co. has fixed costs totaling $165000....

Question 12

The following monthly data are available for Fortner Industries which produces only one product which it sells for $18 each. Its unit variable costs are $8 and its total fixed expenses are $17000. Actual sales for the month of May totaled 2000 units.
Instructions
Compute the margin of safety in dollars for the company for May.

Accepted Answer

The answer of The following monthly data are available for...

Question 13

Determine the missing amounts. $\begin{array}{ccccc}
&&&\text { Unit contribution } & \text { Contribution }\
&\text { Unit Selling Price } &\text { Unit Variable Costs } & \text { Margin }&\text { Margin Ratio }\
\hline1 . & \$ 300 & \$ 210 & A & B \
2 . & \$ 600 & C & \$ 210 & \text { D } \
3 & E & F & \$ 360 & 30 \%
\end{array}$

Accepted Answer

The answer of Determine the missing amounts. \(\begin{array}{ccccc}
&&&\text { Unit...

Question 14

In 2015 Stallman Co. had a break-even point of $800000 based on a selling price of $10 per unit and fixed costs of $200000. In 2016 the selling price and variable costs per unit did not change but the break-even point increased to $840000.
Instructions
(a) Compute the variable cost per unit and the contribution margin ratio for 2015.
(b) Using the contribution margin ratio compute the increase in fixed costs for 2016.

Accepted Answer

The answer of In 2015 Stallman Co. had a break-even...

Question 15

Sandburg Manufacturing manufactures a single product. Annual production costs incurred in the manufacturing process are shown below for the production of 2000 units. The Utilities and Maintenance are mixed costs. The fixed portions of these costs are $300 and $200 respectively. $$\begin{array} { l r r } 
&  { \text { Costs Incurred } } \
 \text { Production in Units } & 2,000 & 4,000 \
 \text { Production Costs } & &  \
\hline \text { a. Direct Materials } & \$ 6,000 & ? \
\text { b. Direct Labor } & 16,000 & ? \
\text { c. Utilities } & 1,000 & ? \
\text { d. Rent } & 3,000 & ? \
\text { e. Indirect Labor } & 4,200 & ? \
\text { f. Supervisory Salaries } & 1,500 & ? \
\text { g. Maintenance } & 1,000 & ? \
\text { h. Depreciation } & 2,500 & ?
\end{array}$$ Instructions
Calculate the expected costs to be incurred when production is 4000 units. Use your knowledge of cost behavior to determine which of the other costs are fixed or variable.

Accepted Answer

The answer of Sandburg Manufacturing manufactures a single product. Annual...

Question 16

Werth & Garza Manufacturing's sales slumped badly in 2016 due to so many people purchasing gifts online. The company's income statement showed the following results from selling 500000 units of product: net sales $2125000; total costs and expenses $2500000; and net loss $375000. Costs and expenses consisted of the following: $\begin{array}{lrrr}
&\underline{\text { Total }} &\underline{\text { Variable } }&\underline{ \text { Fixed }}\
\text { Cost of goods sold } & \$ 2,000,000 & \$ 1,300,000 & \$ 700,000 \
\text { Selling expenses } & 200,000 & 50,000 & 150,000 \
\text { Administrative expenses } &\underline{300,000}&\underline{150,000}&\underline{150,000}\
&\underline{\$2,500,000}&\underline{\$1,500,000}&\underline{1,000,000}
\end{array}$ Management is considering the following alternative for 2016:
Purchase new automated equipment that will change the proportion between variable and fixed expenses to 45% variable and 55% fixed.
Instructions
(a) Compute the break-even point in dollars for 2016.
(b) Compute the break-even point in dollars under the alternative course of action.

Accepted Answer

The answer of Werth & Garza Manufacturing's sales slumped badly...

Question 17

Corris Co. accumulates the following data concerning a mixed cost using miles as the activity level. $\begin{array}{lrr}
&\text { Miles Driven }&\text { Total Cost }\
 \text { January } & 10,000 & \$ 17,000 \
\text { February } & 8,000 & 13,500 \
\text { March } & 9,000 & 14,400 \
\text { April } & 7,000 & 12,500
\end{array}$ Instructions
Compute the variable and fixed cost elements using the high-low method.

Accepted Answer

The answer of Corris Co. accumulates the following data concerning...

Question 18

The income statement for Bradford Machine Company for 2015 appears below. $\begin{array}{c}
  \text {BRADFORD MACHINE COMPANY }\
  \text {Income Statement}\
  \text { For the Year Ended December 31, 2015}\\
\begin{array}{llr}
  \text { Sales (40,000 units)  } &\$1,000,000\
 \text { Variable expenses } &\underline{700,000}\
 \text {  Contribution margin } &300,000\
 \text {   Fixed expenses} &\underline{360,000}\
 \text {  Net income (loss) } &\$(60,000)\
\end{array}\end{array}$
 Instructions
Answer the following independent questions and show computations using the contribution margin technique to support your answers:
1. What was the company's break-even point in sales dollars in 2015?
2. How many additional units would the company have had to sell in 2016 in order to earn net income of $45000?
3. If the company is able to reduce variable costs by $2.50 per unit in 2016 and other costs and unit revenues remain unchanged how many units will the company have to sell in order to earn a net income of $45000?

Accepted Answer

The answer of The income statement for Bradford Machine Company...

Question 19

In the month of September Matlock Industries sold 800 units of product. The average sales price was $30. During the month fixed costs were $6300 and variable costs were 70% of sales.
Instructions
(a) Determine the contribution margin in dollars per unit and as a ratio.
(b) Using the contribution margin technique compute the break-even point in dollars and in units.

Accepted Answer

The answer of In the month of September Matlock Industries...

Question 20

Marvin Co. had a net loss of $150000 in 2015 when the selling price per unit was $20 the variable costs per unit were $15 and the fixed costs were $600000. Management expects per unit data and total fixed costs to be the same in 2016. Management has set a goal of earning net income of $75000 in 2016.
Instructions
(a) Compute the units sold in 2015.
(b) Compute the number of units that would have to be sold in 2016 to reach management's desired net income level.
(c) Assume that Marvin Co. sells the same number of units in 2016 as it did in 2015. What would the selling price have to be in order to reach the target net income? Use the mathematical equation.

Accepted Answer

The answer of Marvin Co. had a net loss of...

Quiz 22: Cost-Volume-Profit

Salem Bakery sells boxes of donuts each with a variable cost percentage of 35%. Its fixed costs are $54600 per year. Instructions Determine the sales dollars Salem needs to break even per year.

Cannon Co. has a unit selling price of $500 variable cost per unit $300 and fixed costs of $240000. Instructions Compute the break-even point in units and in sales dollars.

At break-even point a company sells 1200 widgets. Its selling price is $6 per widget variable cost is $2 per widget and its fixed cost is $4 per widget. Instructions If it sells 200 additional widgets determine the company's incremental profit.

Oakbrook Inc. reported actual sales of $2000000 and fixed costs of $350000. The contribution margin ratio is 25%. Instructions Compute the margin of safety in dollars and the margin of safety ratio.

Hurly Co. has fixed costs totaling $165000. Its unit contribution margin is $1.50 and the selling price is $5.50 per unit. Instructions Compute the break-even point in units.