M3A2 Discussion Exercises E18-14 and E18-15 on page 977

M3A2 Discussion Exercises E18-14 and E18-15 on page 977

M3A2 E18-14 E18-15

E18-14 (L. OBJ. 1) Mixed Costs; the high-low method

E18-14 The manager of Swift Car Inspection reviewed his monthly operating costs for the past year.  His costs ranged from $4,400 for 1,400 inspections to $4,000 for 900 inspections.

Requirements
Calculate the variable cost per inspection.
Calculate the total fixed costs.
Write the equation and calculate the operating costs for 1,000 inspections.

 

E18-15 (L. OBJ. 2) Preparing contribution margin income statements and calculating breakeven sales

E18-15 For its top managers, Countrywide Travel formats its income statement as follows:

COUNTRYWIDE TRAVEL

                                                Contribution Margin Income Statement

                                                Three Months Ended March 31, 2011

 

Sales revenue                                      $316,500

Variable Costs                                     $127,000
Contribution Margin                           $189,500
Fixed Costs                                          $174,000
Operating Income                               $ 15,500

Countrywide’s relevant range is between sales of $251,000 and $365,000.

Requirements:

Calculate the contribution margin ratio.
Prepare two contribution margin income statements:  one at the $251,000 level and one at the $365,000 level.  (Hint:  The proportion of each sales dollar that goes toward variable costs is constant within the relevant range.  The proportion of each sales dollar that goes toward contribution margin also is constant within the relevant range.)
Compute breakeven sales in dollars.

TUTORIAL PREVIEW

Contribution margin ratio = Contribution margin / Sales

    = $189,500/ $316,500

      = 59.87%

 

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