1. Monthly production costs in Dills Company for two levels of production are as follows-
|
Cost
|
2,000 Units
|
4,000 Units
|
|
Indirect labor
|
$10,000
|
$20,004
|
|
Supervisory salaries
|
5,000
|
5,000
|
|
Maintenance
|
4,000
|
6,400
|
Indicate which costs are variable, fixed, and mixed, and give the reason for each answer.
2. For Lodes Company, the relevant range of production is 40-80% of capacity. At 40% of capacity, a variable cost is $4,000 and a fixed cost is $6,000. Diagram the behavior of each cost within the relevant range assuming the behavior is linear.
3. For Wesland Company, a mixed cost is $15,000 plus $18 per direct labor hour. Diagram the behavior of the cost using increments of 500 hours up to 2,500 hours on the horizontal axis and increments of $15,000 up to $60,000 on the vertical axis.
4. Bruno Company accumulates the following data concerning a mixed cost using miles as the activity level.
|
|
Miles Drive
|
Total Cost
|
|
Miles Drive
|
Total Cost
|
|
January
|
8,000
|
$14,150
|
March
|
8,500
|
$15,000
|
|
February
|
7,500
|
13,500
|
April
|
8,200
|
14,490
|
Compute the variable and fixed cost elements using the high-low method.
5. The Soma Inn is trying to determine its break-even point. The inn has 75 rooms that are rented at $60 a night. Operating costs are as follows.
|
Salaries
|
$100600 per month
|
|
Utilities
|
2,400 per month
|
|
Depreciation
|
1,500 per month
|
|
Maintenance
|
800 per month
|
|
Maid service
|
8 per room
|
|
Other costs
|
34 per room
|
Instruction
(a) Determine the inn's break-even point in (1) number of rented rooms per month and (2) dollars.
(b) If the inn plans on renting an average of 50 rooms per day (assuming a 30-day month) what is (I) the monthly margin of safety in dollars and (2) the margin of safety ratio)?
6. In the month of June, Jose Hebert's Beauty Salon gave 4,000 haircuts, shampoos, and permanents at an average price of $30. During the month, fixed costs were $16,800 and variable costs were 75% 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.
(c) Compute the margin of safety in dollars and as a ratio.
7. Barnes Company reports the following operating results for the month of August, sales $325,000 (units 5,000); variable costs $210,000; and fixed costs $75,000. Management is considering the following independent courses of action to increase net income.
1. Increase selling price by 10% with no change in total variable costs or sales volume.
2. Reduce variable costs to 58% of sales.
3. Reduce fixed costs by $15,000.
Instructions
Compute the net income to be earned under each alternative. Which course of action will produce the highest net income?
8. Carey Company had sales in 2016 of $1,560,000 on 60,000 units. Variable costs totaled $900,000, and fixed costs totaled $500,000.
A new raw material is available that will decrease the variable costs per unit by 20% (or $3). However, to process the new raw material, fixed operating costs will increase by $100,000. Management feels that one-half of the decline in the variable costs per unit should be passed on to customers in the form of a sales price reduction. The marketing department expects that this sales price reduction will result in a 5% increase in the number of units sold.
Instructions
Prepare a projected CVP income statement for 2017 (a) assuming the changes have not been made, and (b) assuming that changes are made as described.
9. Yard Tools manufactures lawnmowers, weed-trimmers, and chainsaws. Its sales mix and unit contribution margin are as follows-
|
|
Sales Mix
|
Unit Contribution Margin
|
|
Lawnmowers
|
20%
|
$30
|
|
Weed-trimmers
|
50%
|
$20
|
|
Chainsaws
|
30%
|
$40
|
Yard Tool has fixed costs of $4,200,000.
Instructions
Compute the number of units of each product that Yard Tools must sell in order to break
10. PDQ Repairs has 200 auto-maintenance service outlets nationwide. It performs primarily two lines of service: oil changes and brake repair. Oil change-related services represent 70% of its sales and provide a contribution margin ratio of 20%. Brake repair represents 30% of its sales and provides a 40% contribution margin ratio. The company's fixed costs are 11516000000 (that is, $78,000 per service outlet).
Instructions
(a) Calculate the dollar amount of each type of service that the company must provide in order to break even.
(b) The company has a desired net income of $52,000 per service outlet. What is the dollar amount of each type of service that must be performed by each service outlet to meet its target net income per outlet?